Article How Market Psychology Drives Technical Indicators

T2W Bot

Staff member
Dec 19, 2004
1,401
35
58
#1
When technical tools are used judiciously, their value cannot be overstated. And every time you apply a tool of technical analysis, you are calculating a consensus of bullishness or bearishness among all market participants.
For example, the moving average convergence-divergence (MACD) is simply a tool that measures shifts in consensus from bullishness to bearishness, and vice versa. Extending the basic MACD to a deeper level, we find the MACD-histogram, which is actually a tool for determining the difference between long-term and short-term consensus of value. The measure tracks the difference between the fast MACD line (short-term consensus) and the slow signal line (longer-term consensus).
The principles of market psychology underlie each and every technical indicator, so a good understanding of crowd behavior is crucial to your understanding of the fundamentals of particular technical indicators. Assuming that most readers will already possess some knowledge of interpreting the...
Continue reading...
 
Last edited by a moderator:

Quantt

Active member
Jul 23, 2017
945
54
38
#2
Frankly one can argue that all market movements and indicators "have their root in trader psychology."