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How to run the Sentimentum scan video. Click here.
|Trend Line and Breakout Scan Program|
Mark Seifer's Sentimentum Indicator Explanation.
Top Graph: Price with Bollinger Bands
2nd Graph: Sentimentum Line with its' 20 day moving average
3rd Graph: Sentimentum Index Line
Bottom Graph: Daily Volume with its' 10 day moving average
To Chart Sentimentum in the Ramp program: After you have run a sentimentum scan you go to the "Sentimentum" menu item under "Special Scans" and select the bottom item, "Chart Sentimentum".
combines the principles of momentum and on-balance volume to provide an
advance indication of trend reversals and a measure of overbought / oversold
conditions. It basically measures volume-weighted price movement accumulated
over time. High volume moves cause a corresponding change in sentimentum
while low volume moves produce a reverse effect. Sentimentum doesn't change
when price moves occur at average volume or when there is no price change.
The absolute scale for sentimentum is irrelevant, but the range of the
scale should be at least half the price range over the same time period
for the signals to be reliable.
Sentimentum Line Trading strategies:
You want to buy and/or own a stock when its sentimentum is rising. This is because of the underlying implication that there are more buyers than sellers and the price will ultimately go higher.
Trading strategies will differ in their interpretation and application of this principle. Since sentimentum tends to fluctuate on a daily basis, if one were to aggressively follow this principle they would end up trading on a very frequent basis. To smooth out the daily fluctuation and help discern trends in Sentimentum , the moving average is also plotted. When Sentimentum crosses above or below its moving average it implies a possible change in the trend. Further confirmation is provided when the sentimentum moving average itself turns up or down. Any one of these events can be used as a basis for trading decisions.
Trading strategies that only use sentimentum do not account for risk because they don't take into consideration volatility, support, and resistance. One way to measure the influence of these variables is with Bollinger bands, a very popular technical indicator. By combining the relative strength of Sentimentum with Bollinger bands you get the Sentimentum index which can also be used in trading strategies.
An index of 1.0 means the stock price is at the lower Bollinger band and sentimentum is at a peak for the period (usually 20 days). Conversely an index of -1.0 means that the stock price is at the upper Bollinger band and Sentimentum is at its lowest point. The Sentimentum index has been backed tested on several growth stock portfolios during several time periods and when the index measured 0.6 or above the corresponding stock price appreciated at least 10% in less than 1 month more than 65% of the time. That is why I post stocks from The Spear Report Consensus List with SMI > 0.6 on a daily basis. I also post stocks with SMI < -0.6 although I suggest that people sell their long positions before sentimentum and the Sentimentum index get that low.
There are several points to consider when using the Sentimentum index:
· The index was designed to compare changes in price and volume. When these values do not change much during the evaluation period, sentimentum becomes flat and the index becomes erratic. A good rule of thumb is that the range of Sentimentum should be at least half of the range in the stock price over the period for the signals to be reliable.
· Stocks that are in a strong upward trend often do not fall below the moving average and therefore the Sentimentum index will not rise above 0.5. These stocks may still be worth considering.
· Stocks that are below the moving average are considered by many to be in a downward trend and often run into resistance at the moving average.
· When stocks trade near the Bollinger bands the volume tends to increase causing radical changes in Sentimentum.
Individual Trading strategies should be based on three factors:
· available time and desired trading frequency
· risk tolerance
· size of your portfolio
If more than 50 percent of your trades are successful then it only makes sense that you should trade more frequently. The amount of money you gain or lose on each trade will depend on your risk tolerance. The more diversified your portfolio is the more consistent will be your returns.
Disclaimer: Nebadawn, Inc. assumes no responsibility for actions taken by any individual using Sentimentum or the Ramp program to make investment decisions. Nebadawn, Inc. employees are not brokers or investment counselors and are not providing investment advice. The use of Nebadawn Inc.'s products implies no claims, promises, or guarantees that any suggestion, system, trading strategy, or information will result in a profit, loss, or any other desired result. All users of Nebadawn Inc.'s products assume all risk, including, but not limited to, the risk of losses.
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