Market Psychology - Market Psychology An Introductory...

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Market Psychology – An Introductory Analysis of Intraday Option Patterns Brett N. Steenbarger, Ph.D. www.brettsteenbarger.com Trading psychology not only encompasses the psychology of the trader, but the psychology of markets themselves. With respect to the latter, we are looking at group psychology: the emotional patterns of all participating traders. One common measure of market psychology is “sentiment”. This is sometimes assessed via surveys, such as the polling conducted by Investors Intelligence. It is also more directly measured through indicators such as put/call ratios. Both are commonly held to be contrary indicators. That is, once they reach extremes of bullishness or bearishness, it is assumed that relatively few bulls or bears remain to continue a trend and the market is ready to turn. Does this contrary reasoning apply to intraday trading? We can’t take polls of traders on a frequent intraday basis, but we can measure short-term option trading. My intraday option ratio differs from traditional put/call ratios in one important respect:
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Market Psychology - Market Psychology An Introductory...

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