Market Speculation Index

As promised in previous posts I am going to put my new index on this blog. I think that the index requires a small explanation what is the idea behind and how it works.

What?: the Media Speculation Index (MSI shortly) is a part of my PhD work - it is something very new and in a testing phase. As I am working in a communication science I use a quite new approach to measure the market sentiment. I am a believer of the theory that the sentiment of buyers and sellers are one of the most important market forces which affects price action almost every minute and on every tick.

I have studied different available sentiment indicators and have found them to be not reliable for the short term (intraday traders). Therefore I was forced to create a new indicator for this exact trading style.

Why Media Speculation?: because this index measures where the sentiment of most important media sources like Wall Street Journal, Financial Times, Economist, Forbes etc and it is based on the assumption that in these media sources are represented expectations, decisions, fears and hopes of most important market players.

What does it measure? In the future this index will be applicable to every currency pair or to every market product but currently I can use it only for EURUSD pair because of limitations in time (I am working alone on this and cannot conduct daily research for many indices).

How does it measure: MSI is based purely on qualitative content analysis.

How to read it: the initial starting point for the index is zero. It can move up or down that means it can go in plus or in minus - that is reach plus 500 pints or more or minus 500 points or less. Minimal rising pint is 0.1 and minimal falling pint is -0.1. It has no up or down limits. MSI can move 100 points up or down in a single day.

Why you need it: MSI is planned to be a price action forecasting tool, it is non lagging indicator.

How to interpret it: for exact methods of interpretation more empirical research is needed. Today I can say this: When MSI moves strongly up price action will be bullish and when it moves strongly down price action is expected to be bearish. If its moves are not strong in comparison with other days then market is expected to be range bound.

I will put first forecasts tomorrow. Please use it as a sentiment took for the market monitoring and not as only tool for the trades. It is very "beta" thing and only in the testing phase. And in this phase lot of unexpected things can occur.

Good night.