Sentiment Indicators - Renko, Price Break, Kagi, Point and Figure: What They Are and How to Use Them to Trade

Chapter 1. The Geometry of Emotions and Price Action

The goal of this chapter is to provide an overview of the role of emotions in price action and in analyzing the market. In this chapter, we elaborate on the relationship between emotional states and market conditions and identify the role charting plays in displaying that relationship.

Note

A crowd-mind emerges when formation of a crowd causes fusion of individual minds into one collective mind. Members of the crowd lose their individuality. The deindividuation leads to derationalization: emotional, impulsive, and irrational behavior, self-catalytic activities, memory impairment, perceptual distortion, hyperresponsiveness, and distortion of traditional forms and structures.^[1]

Let's make a key assumption that a price acts as a landmark. The question then becomes, "What is it a landmark of?" Of course, the visual path of a price shows distance over time, and as a result, the concepts and measures of momentum and volatility can be derived from that relationship itself. The structure of candlesticks and bar charts provide further landmarks. Open, high, low, and close, the four components of each chart, represent the failure and success of different emotional forces. The concept of bullish and bearish candles underscores the consensus that emotional forces provide the energy behind the price movement, and that charting ultimately reflects the emotional stage of investors, and consequently reflects the market itself. An entire library ...