A Primer on the Fear/Greed Indicator

//A Primer on the Fear/Greed Indicator

Hawk’s Scan Sentry Report September 12

Welcome to Hawk’s Scan Sentry Report. This is Sunday night with stock recommendations from Jan Arps’ Scan Sentry Toolkit for the week beginning September 12.

Today I want to talk about the Radar1 Fear Greed indicator and how we use it to find potential trading signals. This is one of our most popular tools because of it’s efficacy in demonstrating the strength of the buyers and sellers. One of the most common signals we like to look for is divergences of peaks and valleys between the indicator and the price. Another signal we look for is when the Fear/Greed indicator crosses above or below its zero line. We can also set the Radar1 alert threshold to the value of the indicator’s previous peak or valley and look for a cross of that threshold. Sometimes we also draw trendlines on the indicator’s peaks and valleys and look for signals when the Radar1 value crosses that trendline. In trending markets we like to look for the Fear/Greed histogram bars to get longer again after they shorten up in a pullback.

But right now the American stocks are not in a trending market. In general, the stock index futures contracts appear to be in a state of consolidation. This weekend the S&P index is pretty close to the middle of its current trading range (which by my reckoning spans approximately 1105-1220). So, this week I’m interested in finding a way to use the Fear/Greed indicator to identify stocks which are experiencing increased buying or selling pressure. The Radar1 Fear/Greed indicator is the ideal tool for this because it gives us insight into whether the bears or the bulls are strengthening their grip on the markets in question. But how do we identify this condition?  This week in order to identify the relative strength of the Radar 1 Fear Greed indicator,  I created for myself a modified tool which calculates a moving average of the Fear/Greed indication, and then identifies a signal when the strengthening or weakening Radar1 value crosses it’s own moving average.  For the time being I’m calling this custom tool my Radar 1 MACD indicator.

If my Radar1 MACD does as well as last weeks custom Radar 2 “auto OB-OS” tool I’ll be encouraged. By the end of last week, the new tool I created showed profitable indications on five of the seven stocks  identified in last weeks report; with YONG gaining 7.5 % on a long position and ATK showing better than a 4% profit with a short signal.

But remember, this is an untested tool, so I would recommend extreme caution as you are making your trading decisions. I am bringing this new tool to your attention  as an example of one of the myriad ways you can use the versatile Arps indicators to help identify potential trading set ups.

Let’s see how she does…

Longs_______Shorts

MRVL              KT

MU                   TTM

SNDK               BCSI

YHOO

May the trend be with you,

Hawk

Jan Arps’ Traders’ Toolbox is not an investment advisory service nor a registered investment advisor or broker-dealer and does not purport to tell or suggest which securities customers should buy or sell for themselves. Examples presented on this site are for educational purposes only.  It should not be assumed that the methods, techniques, or indicators presented in these examples will be profitable or that they will not result in losses. There is a high degree of risk in trading.  Readers using this information are solely responsible for their actions and trade at their own risk. Readers should always check with their licensed financial advisor .

2018-01-08T08:29:43+00:00September 12th, 2011|Hawk's Picks|