Sentiment index allows traders to take a quick note of investor’s or marketer’s feelings. The investor sentiment index is mostly neutral but provides better results when the market is strongly bearish or bullish. When the market sentiment is bullish, investors expect prices to move upwards and when the market sentiment is bearish, investors expect prices to move downwards.
Intelligence sentiment index is highly affected by major events in the market and thus it isn’t generally used in lone manner rather in combination with other indicator for optimal results.
The most critically acclaimed method to ascertain the index is Investors Intelligence Report.
Chartcraft estimates Investor Intelligence sentiment index based on various projections and forecast from newsletter writers. Investor Intelligence Sentiment Index is based on contrarian proposition i.e. investment should be made against the common expert advice or prediction. This allows traders to make profit from imminent reversal. The reversal of opinions is most likely to occur when most of the predictions are pointing towards a single direction.
In general, the company creates an indicator ranking system called as Sentiment Index Ranking to make it more useful. It helps the traders and enables them to predict the change in trends. A value getting close to (-10) represent extreme bullishness and signifies a change in trend towards downward direction and similarly a value in proximity of (+10) represents extreme bearish nature and signifies change towards positive direction.