Sentiment in the Forex Market: Indicators and Strategies to Profit from Crowd Behavior and Market Extremes

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c06 JWBK195-Saettele June 5, 2008 19:35 Printer: Yet to come

118 SENTIMENT IN THE FOREX MARKET

FIGURE 6.10 A five-day rolling pivot zone can be used as a trailing stop in order

to lock in profits

Source: Chart created on TradeStation

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There is very little difference visually between price oscillators. All

move up at the same time and all move down at the same time. All price

oscillators are calculated from the same thing: price. This sounds painfully

obvious. However, many new traders feel the need to use a multitude of os-

cillators. The result is dedicating too much attention to the indicators and

not enough to price action itself. Still, oscillators are valuable tools and

should be implemented as part of a successful trading strategy.

Momentum and Rate of Change Momentum, the most basic oscilla-

tor, is the arithmetic change in price over a specified period of time. If you

were calculating a 13-day momentum, then just subtract the closing price

of 13 days ago from today’s closing price.

Momentum = price(current) − price(x periods ago)

The most important feature of momentum is the relation of t he indi-

cator to the zero line. A reading above 0 indicates positive price change,

and a reading below 0 indicates negative price change. For example, 13 pe-

riod momentum crossing above the 0 line indicates that the closing ...