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Without exception, all technical indicators are visual and trading on them is quite simple due to the fact that trading signals appear directly on the indicator or price chart. However, there is another kind of indicator on the Forex market. They are not plotted and their work is not visible at first glance. Nevertheless, those who know how to use them wisely can also trade successfully.
These indicators are called psychological. Already from one name it is clear that they are studying the psychology of the behavior of market participants. There is nothing mathematical in these indicators, and sometimes, they are difficult to explain using elementary logic. However, their importance for trade cannot be underestimated. Moreover, most successful traders use various types of market analysis and skillfully combine them.
The ratio of bulls and bears
One of the prominent representatives of psychological indicators is the coefficient of bulls and bears. It is based on a simple survey of analysts and speculators regarding their market forecasts. After such a survey has been done (by the way. You can simply compare the statements of analysts and display statistics yourself), you can determine the ratio of those who speak for the prospects of purchases, as well as those who prefer short positions at the moment. If analysts agree that the market is on the wave of optimism, we can say that at that moment it almost reached its peak. As for the pessimistic moods, their extreme manifestation indicates a possible bottom. That is, high bulls / bears ratio can warn the trader about a possible reversal of the main movement.
Studies in this direction have shown that when the bull / bear ratio exceeds 60 percent, the first sell signal appears on the market. The same thing, only exactly the opposite can be said about the value of this coefficient below forty percent.
This indicator shows market volatility. There are two ways to interpret it. The first one suggests that when peaks are reached in the market, increased volatility is observed (at such moments, market participants begin to get nervous and their actions become indecisive). As regards the bottoming of the markets, it may be accompanied by a decrease in volatility (that is, market participants begin to “get bored”).
The second interpretation suggests that market volatility can increase when prices are close to the bottom of the market when there is a panic dump. At the same time, volatility decreases when the markets are not far from the top, in a mature bull trend.
Many financial journalists write great stories about markets, but in reality, they know absolutely nothing about trading. And this is actually so. Journalists can skip most trends, as well as important turning points in the markets. The meaning of this psychological indicator is to catch the mood of the press. When journalists begin to unanimously declare their preferred purchases or sales, it is necessary to trade against their opinions. It is this property of this psychological indicator that gives it a second name - an indicator of the opposite opinion. Naturally, such an indicator cannot be as accurate as, for example, a trend following indicator can be. However, he can tell the trader that the market is already close to a reversal. Trend trading can continue if the opinions voiced by the press by journalists do not coincide.
Thus, from the foregoing, it is clear that it is possible to trade in the Forex market using not only visual, but also psychological indicators, which in most cases recommend the trader to go against the generally agreed opinion.