It is easier to make consistent trading profits by trading with the trend than going against it. Besides looking out for technical support-resistance levels and trendlines, getting market sentiment right is equally important. After all, it is easier to make more money when we join winners than stand with the losers. Better still if the same group of winners are in control of all multiple time frames.
Gauging market sentiment with CLOSE, OPEN price
Traders can determine market sentiment by comparing price right now (CLOSE) against price at the opening (OPEN) of the trading session. For example, if Gold is trading higher than its opening price at the beginning of the month, it is bullish. Why? Buyers who paid the opening price are obviously in the money right now and very happy of course? Imagine a candlestick. This could be applied to other time frames.
You can remember this by hard:
BULLISH DAY = PRICE CLOSE NOW > PRICE OPEN THIS MORNING
BULLISH WEEK = PRICE CLOSE NOW > PRICE OPEN THIS MONDAY MORNING (WEEK OPEN)
BULLISH MONTH = PRICE CLOSE NOW > PRICE OPEN FIRST TRADING DAY OF MONTH (MONTH OPEN)
BULLISH YEAR = PRICE CLOS ENOW > PRICE OPEN FIRST TRADING DAY OF YEAR (YEAR OPEN)
For bearish market sentiment, reverse according to price CLOSE < OPEN
How to do it easily
Period separator on MT4 for multiple time frames
MT4 has a very easy to use function called ‘period separator’. By pressing CTRL-Y, a set of vertical lines will appear which will separate the chart into segments or intervals.
On 4-hourly chart, the lines separate price into segments of week by week
On the daily chart, the lines separate months
On the monthly chart, the lines separate years
Marking OPEN price
You can park a line on the OPEN price of any period you wish by using the ‘horizontal line’, ‘trendline’ or ‘rectangle’ function.
PRICE < 2013 OPEN – bearish
After you do so, you can make a statement about EURUSD immediately. Based on the chart above ‘market sentiment bearish: EURUSD is now trading (CLOSE) below 2013 OPEN’.
Forming a multiple time frame picture
In the chart above, market sentiment tells us that the market is really bearish since it could not beat the opening price of the year since more than four months of trading. Bulls are losing money. Bears are clearly the winners.
PRICE < MAy 2013 OPEN – bearish
Going down to the next time frame, price tells us as of today that bears are winning this month.
PRICE < Week 19 OPEN – bearish
Bears are also winning this week.
Simple guide to traders
Of course the final objective of this exercise to form a multiple time frame picture of market sentiment is to trade it.
A swing trader or investor can wait for all stars aligned
When all stars are aligned, there is one dominant sentiment; consider trading with it as ‘moving along with all flows‘, or ‘entering a building with all doors open‘.
Scalpers can trade short term price momentum in line with the weekly sentiment in 4-hourly chart.
Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.
Soh Tiong Hum is a member and regular speaker at Technical Analysts Society Singapore events and has a bi-monthly lunch time event at IG Singapore on forex and stock markets. He is an avid blogger on technical analysis topics; his Twitter account @sohtionghum was ranked #23 out of The Top 70 Twitter Accounts To Follow In 2015 by MahiFX.
Come find Tiong Hum on Google+