PSY Indicators: My 3 ways of using it
Hello everyone! I am going to post my learning points on PSY!
When I first saw this topic, I was quite stunned. As I wonder why there is a challenge on PSY in MooMoo platform.
It is not easy to learn PSY as PSY is a very talented singer. I could not even do a proper gangnam sytle by watching his video again and again.
Like this "sytle"...
When I first saw this topic, I was quite stunned. As I wonder why there is a challenge on PSY in MooMoo platform.
It is not easy to learn PSY as PSY is a very talented singer. I could not even do a proper gangnam sytle by watching his video again and again.
Like this "sytle"...
or this style:
Oppps, wait, the PSY mentioned by @Meta Moo is not this PSY? Oh well, sorry for my lame joke.
Psychological Line (PSY)
I would say that this is a very interesting indicator, as it measures the investors' emotion to time the entry and exit of the market. I reckon that this is a very important indicator, as in fact, market is mainly driven by emotion, and not rational. Not believe? Let me share 2 fun facts with you:
Newton, a great physics and the one hit by apple, and discover the gravity, indeed one of the smartest people to ever live. Newton obviously wasn't a dumb person, right?
Psychological Line (PSY)
I would say that this is a very interesting indicator, as it measures the investors' emotion to time the entry and exit of the market. I reckon that this is a very important indicator, as in fact, market is mainly driven by emotion, and not rational. Not believe? Let me share 2 fun facts with you:
Newton, a great physics and the one hit by apple, and discover the gravity, indeed one of the smartest people to ever live. Newton obviously wasn't a dumb person, right?
Let us see his investing experience:
"Newton dumped his South Sea shares, pocketing a 100% profit totaling £7,000. But just months later, swept up in the wild enthusiasm of the market, Newton jumped back in at a much higher price — and lost £20,000 (or more than $3 million in today's money. For the rest of his life, he forbade anyone to speak the words 'South Sea' in his presence."
"Newton dumped his South Sea shares, pocketing a 100% profit totaling £7,000. But just months later, swept up in the wild enthusiasm of the market, Newton jumped back in at a much higher price — and lost £20,000 (or more than $3 million in today's money. For the rest of his life, he forbade anyone to speak the words 'South Sea' in his presence."
Then, he claimed that: "I could calculate the motions of the heavenly bodies, but not the madness of the people"
Can you name another smartest person in the world? I would say: Einsteine. Hopefully you agree with me.
This was happened to his investing journey:
Can you name another smartest person in the world? I would say: Einsteine. Hopefully you agree with me.
This was happened to his investing journey:
"Few know that Albert Einstein invested much of his 1921 Nobel Prize money in stock markets. However, he lost a bulk of it in the stock market crash in 1929."
Above two fun facts show that, the market is not rational, but emotional. Even the greatest scientist of the world are not able to measure or calculate the market rationally. I guess, both of them would be happy if they know there is an indicator "PSY" that could measure the people emotion in the stock market.
Okie, after a bunch of bullshit, time to start my learning points properly.
I will be sharing 3 of my learning points using PSY:
i) PSY indicator and the trend
ii) PSY indicator and the reversal
iii) PSY indicator and the divergence
Learning point 1: PSY indicator and trend
In brief, PSY indicator compares the amount of the rising periods to the overall number of periods. Generally speaking, this indicator demonstrates the percentage of bars that close higher than the previous bar over the specific time period. It moves between 0 to 100.
Above two fun facts show that, the market is not rational, but emotional. Even the greatest scientist of the world are not able to measure or calculate the market rationally. I guess, both of them would be happy if they know there is an indicator "PSY" that could measure the people emotion in the stock market.
Okie, after a bunch of bullshit, time to start my learning points properly.
I will be sharing 3 of my learning points using PSY:
i) PSY indicator and the trend
ii) PSY indicator and the reversal
iii) PSY indicator and the divergence
Learning point 1: PSY indicator and trend
In brief, PSY indicator compares the amount of the rising periods to the overall number of periods. Generally speaking, this indicator demonstrates the percentage of bars that close higher than the previous bar over the specific time period. It moves between 0 to 100.
The above picture is a screenshoot of my PSY indicator. I draw a yellow line to mark the "50" level. Green box indicates the region where PSY indicator is above 50, while the red box indicates the region where PSY indicator is below 50.
If the indicator is higher than 50, it means:
i) More than 50% of the bars are closing HIGHER than the previos bar over the specific time period
ii) The market is under BUYERS'S CONTROL, and we can expect the BULLISH TREND will arise.
If the indicator is lower than the 50, the opposite applies:
i) More than 50% of the bars are closing LOWER than the previos bar over the specific time period
ii) The market is under SELLERS' CONTROL, and we can expect the BEARISH TREND will arise.
Using our favourite $S&P 500 Index(.SPX.US$ as an example here:
If the indicator is higher than 50, it means:
i) More than 50% of the bars are closing HIGHER than the previos bar over the specific time period
ii) The market is under BUYERS'S CONTROL, and we can expect the BULLISH TREND will arise.
If the indicator is lower than the 50, the opposite applies:
i) More than 50% of the bars are closing LOWER than the previos bar over the specific time period
ii) The market is under SELLERS' CONTROL, and we can expect the BEARISH TREND will arise.
Using our favourite $S&P 500 Index(.SPX.US$ as an example here:
We can see that in the green region (PSY >50), each dip is an oppurtunity to buy! When the stock is in the red zone, we can either sell the stocks for profit, or short the stocks.
Traders, who trade with trends, will usually open a buy trade, if the PSY is in the green zone, which is higher than 50 and a sell trade, if the PSY is in the red zone, which is lower than 50.
Of course, we should never only use 1 indicator to decide our entry and exit. In this example, I found that it works particularly good with EMA 20 and EMA40. In the bullish zone, whenever the prices touched (yellow circles) these 2 supports, there are higher chance for the stock to bounce.
Traders, who trade with trends, will usually open a buy trade, if the PSY is in the green zone, which is higher than 50 and a sell trade, if the PSY is in the red zone, which is lower than 50.
Of course, we should never only use 1 indicator to decide our entry and exit. In this example, I found that it works particularly good with EMA 20 and EMA40. In the bullish zone, whenever the prices touched (yellow circles) these 2 supports, there are higher chance for the stock to bounce.
Conversely, in a bearish zone, EMA20 and EMA40 are now becoming the resistance. The stock bounces lower.
Learning point 2: PSY indicator and the reversal
This part is more on the overbought and oversold. Overbought and oversold levels, 70 and 30 accordingly, can be used to anticipate the reversal. For instance, if the price crosses the 70 line from below, the asset is considered to be overbought. Because the stock price can't remain in the overbought position all the time, it will have to leave at some point. Consequently, a new downturn trend may be awaited- reversal happens. The same happens with the stock price which remains in the oversold position for a long time. The price will have to go back up at some time.
For this part, I will draw two lines to mark the overbougt region at 70 and oversold region at 30.
This part is more on the overbought and oversold. Overbought and oversold levels, 70 and 30 accordingly, can be used to anticipate the reversal. For instance, if the price crosses the 70 line from below, the asset is considered to be overbought. Because the stock price can't remain in the overbought position all the time, it will have to leave at some point. Consequently, a new downturn trend may be awaited- reversal happens. The same happens with the stock price which remains in the oversold position for a long time. The price will have to go back up at some time.
For this part, I will draw two lines to mark the overbougt region at 70 and oversold region at 30.
From the chart above, we could see that when the PSY indicator reaches the overbought region, the stock tends to reverse afterwards. For the two rightmost signals, when the PSY indicator reaches the oversold region, the stock would move upwards.
Similar to the other indicator, technical analysis will have false signal. The 3rd overbought signal was a false signal as the stock moves higher and higher. Thus, it is always important to plan our entry and exit points.
Learning point 3: PSY indicator and the divergence
I will be using $Snap Inc(SNAP.US$ here:
Learning point 3: PSY indicator and the divergence
I will be using $Snap Inc(SNAP.US$ here:
Do you notice that while the price is going higher, but the PSY indicator is going lower? This is called divergence. When a divergence happens, it signifes a potential trend changes. We could see that the up-trend was broken after the divergence happened.
To spot the divergence, we do not need to mark the PSY level. In addition, it will be more reliable compared to the learning point 1 and 2, as the PSY indicator is now combining with the price action to confirm a trend reversal. However, it is not easy to spot the divergence.
Ok, this is all for my sharing for this topic.
Please follow me here if you would like to receive more updates on my investing sharing.
In addition, please also subscribe my YouTube channel if you would like to get more insights about investing and my latest update.
https://www.youtube.com/channel/UCXrx37FdB5C3Lby2m9R3HAQ
Thank you and see you in the next post!
To spot the divergence, we do not need to mark the PSY level. In addition, it will be more reliable compared to the learning point 1 and 2, as the PSY indicator is now combining with the price action to confirm a trend reversal. However, it is not easy to spot the divergence.
Ok, this is all for my sharing for this topic.
Please follow me here if you would like to receive more updates on my investing sharing.
In addition, please also subscribe my YouTube channel if you would like to get more insights about investing and my latest update.
https://www.youtube.com/channel/UCXrx37FdB5C3Lby2m9R3HAQ
Thank you and see you in the next post!
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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learn investing in my YouTube channel at "JM investment journal"
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NANA123 : wonderful sharing!
NANA123 : recently i'm so busy, seldom learn new TA indicators. lucky to see your post now
JM investorOP NANA123: thank you Nana! hope you are doing well!
NANA123 JM investorOP:
JackieRose : Thanks Bro, it is amazing how you read The Market!!
whqqq : Excellent sharing! It's very nice of you
Dons hobby : I have a question about ADR fees. I bought 40 shares of NIO yesterday first time ever.
I then found out there are ADR fees. They didn't tell me what the fees were when I bought in. I now have 110.78 frozen is that for the ADR fees would you know. I was under the impression it was like 5 cents a share ADR fees and I am wondering is this amount right. Or is this a bit expensive ?
Milk The Cow :
JM investorOP Dons hobby: Hi Dons, the ADR fee is only $0.01-0.05 per share.
not sure if there are some buy orders are not yet executed.
Dons hobby : Thanks for taking the time to explain it to me I appreciate it.