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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Night Trader who wrote (83840)	5/18/2003 11:04:44 PM
From: Psycho-Social	Read Replies (1) \| Respond to of 99985

Sentiment Surveys: While I agree with the idea of trying to test the usefulness of an indicator before using it, there are practical difficulties in designing an appropriate test. One month change in Market price is probably not reasonable. I did have the opportunity to do a test of Jake Bernstein's DSIs using some software purchased by a money management firm where I worked for a while. The test went something like this: Assume a buy each day bullishness is below 15% and a sell each time it is over 75%. I believe I set a limit of 5 baskets of buys. The idea was that you buy when bullishness is low, and sell when it passes the upside threshold, regardless of how long that takes. After trying a multitude of parameters, I believe the five day mov ave proved the best, together with buy and sell points somewhere close to those mentioned above. The annual return from that formula was perhaps 10% pts over Market returns. Something similar needs to be done with my 3 indicator average of AAII, Consensus Inc and Market Vane. I didnt do it when I was at the money management firm because, although I had the historical data, it wasnt part of the data base that was used by the analytical software, and I wasnt able to get it to analyze data supplied from external sources. Still, to give you a few examples of where it stood at key Market highs and lows: January 2000: 58.5% bulllish, late March 2000:48.7% bullish, Sept 6,'00: 58% bullish, March 21,'01: 20% bullish, May 23,'01: 58% bullish, mid-Sept,'01: 26% bullish. Late Nov,'01: 58%, Mid'Late July '02: 22% bullish, Mid Feb '03: 23.7% bullish. The ultimate peaks and troughs in sentiment are only obvious after the fact, of course, and the lowest sentiment low doesnt always match with the primary Market low, but it's still a valuable tool, to be used in conjunction with other indicators.