Understanding the moodix market sentiment indicator
Moodix Index Basics
The Moodix Index is the main value from which other parameters are derived. It is calculated from measuring the strength of market reaction to breaking news. We measure those reactions on ES futures, one of the most liquid markets that is a strong correlate for major European and American markets. Approximately 4000-5000 news items flow into the markets each day, with only 20-30 being truly breaking news that are proven to move the market. The Moodix Index accumulates breaking news, providing a measure of market sentiment that starts afresh each trading day.
Sentiment Waves
The daily “moodix_index” value, changes throughout the day based on the number and impact of measured news items. This value is indicative of whether breaking news was positive or negative for the markets for the respective day. Hence we derive sentiment wave values that represent long-term market sentiment.
Long-Term Sentiment Measurement
Long-term sentiment, referred to as “sentiment_wave” in the API, is the difference between two moving averages (MA10 and MA5) of Moodix index. This difference reflects the market memory over one and two trading weeks, providing a sentiment value that is visualized as waves oscillating around zero.
How to Use Sentiment in Trading
The sentiment waves guide traders on market positioning:
RiskOn (Positive sentiment): When the market sentiment is positive, traditional long strategies are advisable.
RiskOff (Negative sentiment): In negative sentiment periods, short strategies are recommended.
As an additional information we provide a trend measure (“trend”) that indicates the phase of the current sentiment wave:
Growing RiskOn: An uninterrupted, positive trend.
Sideways RiskOn: A disrupted positive trend.
Fading RiskOn: Indicates the end of a positive trend.
Growing RiskOff: An uninterrupted, negative trend.
Sideways RiskOff: A disrupted negative trend.
Fading RiskOff: Indicates the end of a negative trend.
Thresholds for Trading Decisions
For a RiskOn wave, a “sentiment_wave” reading above +0.11 suggests a strong positive sentiment.
Conversely, when the “sentiment_wave” falls towards this threshold, it may signal the end of a RiskOn wave.
For a RiskOff wave, a “sentiment_wave” reading below -0.21 is recommended before considering short trades, due to the market’s inherent tendency to rise.
Non-trending Periods
Neutral readings indicate unclear market sentiment, suggesting a wait-and-see approach for trading.