Tuesday, September 15, 2009

Waves of Emotion - Part 1

There's been a couple of projects that I've been working on, one of which is to determine if there are any direct human indicators that provide a reliable method of predicting an impending turn on the All Ordinaries index.

The logic under consideration was: If Elliot Waves are based on social mood (at all degrees of time scale), therefore it should be possible to identify emotional actions/responses to help identify waves that appear in the stock market.

So the answer is yes - of course. The first chart is analysis of a particular discussion forum thread and plotting the dates and quantity of posts on any given day. The correlation between posts and the following bounce within a few days on the XAO is almost 100% accurate. Hence, by simply watching threads on discussion forums (very selective threads) it is possible to use them to help in one's trading plan - at a minimum as a warning indicator.

If we overlay Elliott waves to these post we notice a couple of things:

1) Posts relate directly to the start of Waves on the index as well as the type of wave that unfolds. For example, with waves '(4)' and '4' (both being triangles) there is a series of posts at the start of waves 'a' and 'c' in the triangles. Triangles have a sideways direction, so it stands to reason that posts will support this sideways flow.

In contrast, the waves (1), (5), 'X' circle show a large number of posts before and on the day of reversal to new short term highs.

2) Time scales: The discussion posts tend to relate to waves of Intermediate and Minor degree of scale. Other human emotional actions/responses will be seen at other degrees of trend as well, just not necessarily discussion forum threads. For example, those who trade on the Stock Exchange floors can probably see the emotion at much smaller degrees of trend (eg 1, 5, 60mins).

The next part of this project aims to identify the tops of Intermediate and minor degrees of trend.

Sunday, September 6, 2009

September Market Update

The latest September Market update has been published on the ASF here

Membership will be required to download the PDF.