Sentiment/Psychology

One of my strong points is an innate understanding of human psychological behavior, and as pertains to markets, within the context of the majority’s instinctive tendency to herd and have their belief systems validated at all times.  In other words, the herd needs to try to feel good about itself at all times.

But these are the financial markets and if you participate in them you are at war with millions of other humans (and a whole lot of machines).  You are in a battle to attain the high ground of unbiased and clear thinking and to above all, get outside the herd and its preconceptions.  So NFTRH employs a high dose of good old fashioned knowledge of human behavior patterns and well, instinct.

Along side the more humanistic elements we use in viewing the market from an independent standpoint, NFTRH maintains a premium subscription with Sentimentrader.com, which allow us to access market sentiment data not freely available elsewhere.  While market sentiment is not usually a good timing tool, certain sentiment structures are necessary components of important market turning points. Rather than a timer for change, contrary sentiment is an important condition for change.

Tools we use on a regular basis include the AAII, NAAIM and Investors Intelligence surveys, the Equity Put/Call ratio’s 10 week moving average (a gauge for building or easing structural sentiment pressure one way or the other), ‘Smart Money’ indicators vs. ‘Dumb Money’ indicators, public optimism/pessimism, Commitments of Traders (CoT) and a host of other indicators used to build firm sentiment narratives, when appropriate.

The best tool in my box is, however, a good old fashioned bullshit detector, which is so important when navigating everything from the mainstream financial media to politics and policy to the plethora of promoters populating the various market sectors. It’s vital.