Using the AAII Sentiment Indicator to Predict Equity Market Reactions
How to Use the American Association of Individual Investors’ Sentiment Report
--
Market sentiment is an extremely important tool within the trading framework. It allows us to validate our ideas with regards to timing and other participants’ intentions. This article discusses an equity sentiment indicator published by the American Association of Individual Investors.
For a complete collection of candlestick patterns in detail with back-tests and technical strategies, you can check out my newest book with O’Reilly Media. The book features a huge number of classic and modern candlestick patterns as it dwelves into the realm of technical analysis with different trading strategies. The book comes with its own GitHub and is dynamic in nature as it is continuously updated and questions are answered on the O’Reilly platform promptly.
The AAII Investor Sentiment Survey
The AAII survey is a weekly sentiment report which can easily be transformed into a time series indicator. It studies the opinions of individual investors through polls and by asking them their thoughts on the direction of the market over the mid-term (around 6 months).
The survey has existed since 1987 and thus has a sizable amount of historical data. It is generally compared to the values of the S&P500 index, the most famous US equity index.
As stated, the survey is done on a weekly basis and runs from Thursday to Wednesday. They offer a full historical data download with the S&P500 put in parallel which is a huge time saver. The Following image is an example of their dashboard
The above shows a glance of the recent results of the survey where investors manifest their opinions by having three…
