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The American Association of Individual Investors, AAII, is a non-profit organization founded in 1978 and located in Chicago. AAII conducts, every week, a pool to determine the overall stock market sentiment of their members over the next six months. Members should tell what they think the market will be in six months. Investor sentiment is classified as being bullish, neutral or bearish. Each week, AAII reports the pool results and gives the percentage of members that are bullish, the percentage of those that are bearish and the percentage of neutral members.
AAII sentiment survey is frequently used as a contrarian indicator where a high number of bullish or bearish investors often corresponds to a high likelihood of changes in the direction of the stock market.
This trading object gets the AAII sentiment survey historical data beginning from 1987 to present. The data is available in Excel format and after being parsed it is associated with three ticker symbols and saved in the Quotes database. The symbols are: ^AAII_BULLISH, ^AAII_BEARISH and ^AAII_NEUTRAL.
Because the survey is conducted every week, traders usually smoothes the time-series or ratio/indicator, derived from the AAII sentiment survey, using a four-week moving average. An example of ratio that uses the percentage of AAII sentiment survey bullish and bearish members is the AAII Bull Ratio. The ratio is computed by dividing the percentage of bullish traders by the sum of the percentage of bullish and bearish traders. Note that the sum of bullish and bearish traders is not equal to 100% because in order to reach that number we should also add the percentage of neutral traders.
Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
