How to Read Market Sentiments Using Advances and Declines?

So guys, welcome to VRD nation. Through this channel, we are trying to develop a community of smart investors and traders by sharing knowledge, sharing our experience, using practical, real-life examples, case studies. Great. So if you’re new to this channel, do not forget to subscribe. All right.

So having said that let’s get started. So guys, in this session, we will focus on how to read the market sentiment and we’ll do this using this practical life example right here and I will explain how my understanding of the mood of the market helped me manage to come out with a profit of 50,000 rupees.

So this is not a theoretical concept that we’re just learning in the books. This is a very practical concept that has to be applied in real-life trading. So the first question that we need to answer is that what are market sentiments and why is it important to pay attention to them? See if you want to be a successful trader, you need to develop a solid understanding of the sentiment in the market.

And I can tell you from my own experience, that when I started trading, I had no sense of the sentiments in the market. I was looking at my own set of data, my own set of indicators, but I was not paying attention to the sentiment in the market. And what was happening because of that, is that in the extremely bearish sentiment markets, I was taking long trades and in an extremely bullish sentiment market, I was taking short trades and because of this mistake, I was losing a lot of money.

But later I realized that it’s very important to have the pulse of the market. And one of the most common ways for understanding the sentiment in the market is advances. Now, this particular indicator, I started using, about 12 or 13 years ago.

And from that date until this date, I use it daily. I don’t place a trade without looking at the advances and declines. So what exactly are these advances and declines? Well, advances and declines in very simple terms mean that how many stocks are moving up versus how many stocks are moving. So if more stocks are moving up as compared to those stocks that are falling, it means that the sentiments in the market are bullish.

And of course, if more stocks are declining as compared to two stocks that are advancing, it means that the sentiments are bearish. Now, this advance to decline analysis can be done on different timeframes. You can do this daily, weekly, monthly. So for long-term investors, for example, will look at a longer timeframe.

But I think this analysis of advances or declines is most applicable for intraday traders. So if you are an intraday trader, you need to keep an eye on the advances and declines because your trade can get into trouble if you’re swimming against the tide. Now a perfect example of that will be today’s trade.

So this is the chart of nifty future, and this is a 5-minute chart. On this chart, somewhere around 12:35 or 12:40, I got a signal for the long trade. And as soon as the signal came, I had to make two decisions. The first thing that I wanted to know was that how were the sentiments in the market?

So if I have to take a long trade, I don’t want to be taking a long trade in a strongly bearish market. And the second decision that I had to take was, should I be taking this straight on nifty or should I be taking this trade on bank nifty? So what I found was the sentiment in the market was not very strong.

So there’s also a possibility that the market would turn and then, you know, the things will get more bullish. But at the time I got this long signal, I did not have clear visibility of whether these sentiments are going to turn bullish later in the second half or not. And as far as the decision of taking their trade on nifty versus bank nifty, it was very clear that if there was any long trade, the long trade had to be taken on nifty, not bank nifty because the sentiment in banking stocks was very bearish.

So based on this information about the sentiment in the market, I concluded that yes, I will take a long trade. But the trade will be on nifty and the profit target for this particular trade is going to be something much more reasonable. I cannot be very aggressive. So I had a very humble target of about 50 points.

So if I get 50 points on nifty, I will be more than happy. Or if the absolute profits, will go up to 50,000 rupees, I will book my profit and I will come out. So with this understanding, I took a long trade on nifty at somewhere around 12:40, and I exited the trade somewhere around 1:10. As soon as I saw the profit of fifty thousand, I came out.

And if you take a look at this particular chart of the option that I shorted, you will understand the importance of my exit. So, the trade was taking somewhere around here. So at 160 rupees, I took a short trade on this put option, which meant that I went long on the market. And I exited somewhere around.

I bet, I guess, somewhere around here, a hundred and thirty-five. So, this is where I made somewhere around 50,000 rupees, but take a look at what happened next, right. Immediately after I exited, the market bounced against me. And my Rs. 50,000 profit would have gone down to zero. And then of course, from there it went down, but you can easily imagine if you’ve ever traded having an unrealized profit and letting that unrealized profit go back to zero can be a very stressful experience.

So basically what helped me was the understanding of the sentiment in the market. And also the fact that it helped me come up with a reasonable target and not to be too aggressive in a market, which is not exactly in the right kind of sentiment for the trade. So of course it all worked out and I made some profit and going into the weekend. It is always a good thing.

But the question here arrives that. How did I assess the sentiment in the market before making that trade? Number one and number two is how was I able to differentiate whether to take a trade on nifty versus bank nifty. So for understanding that, I will tell you about two great websites that I use for tracking the market sentiment, not just in the market itself, but across the different sectors in the market.

So the number one website that you have to keep on your radar for advances to declines is NSE India.com. So, this is like the mother of all trading websites. So you need to go and check out NSE india.com. So let me show you guys on the NSE’s website, the first screen that you have to pay attention to will be that of the live market, where you can see the overall advances and declines.

So as you can see here, that 762 stocks were advances and 1,216 stocks with decliners mean they went down compared to the closing of the previous days. So clearly the number of declines was higher, much higher than the number of advances and 77 stocks basically remain unchanged. So when you compare the number of advances to declines, you get an understanding of in general whether buying is coming in this market or selling is coming in this market. There is one little detail that you need to understand, and that is this little star here, right? So they have some notes at the bottom, which explains what this star means. So here, this note says overall advances to declines for the normal market during trading hours is concerning the last traded price and at the end of the day is based on the closing place, which means that if you are looking at these numbers on an intraday basis, these advances are concerning the last traded price of those stocks. So let’s say one minute back or half a minute back, whatever was the last-minute price with respect to that, whether the stocks have gone up or the stocks have gone down.

So that is the case in an intraday context. But if you are looking at these numbers at the end of the day, which is what we’re seeing right now at 4 o’clock, then the comparison is not on an intraday basis, it is concerning the closing price of the previous trading session.

So that is a very important differentiation that you need to keep in mind. Number one, number two, that these numbers that we are seeing right here, are the overall advances and declines that are for the overall market. But what about, the advances in declines concerning a particular sector. So for that, you have to come to the index wise advances and declines. So when I click here and you come to this screen, you can see that for nifty 50 stocks, I can see that within these 50 stocks, 15 were advances and 34 were declines. It means out of the 50 stocks, 34 stocks came down, 15 stocks went up and one of the stocks remained unchanged.

So clearly it tells us that the sentiments were bearish at almost double more than the Stocks for declines. But remember that example that I took earlier, where I explained that when I was trying to decide between nifty and bank nifty, I decided to go with nifty, but not bank nifty. Why? Well, let me show you why.

So now if I select nifty bank here, take a look at this. In the nifty bank, out of these 12 stocks that are part of the nifty bank, only two stocks were advancing and 10 stocks were declining. So clearly it tells me that the sentiment in the banking stocks was much more bearish as compared to the sentiment in nifty.

Now the third screen that you have to keep in mind when it comes to advances and declines is the historical data of advances and declines. Now, this is not going to be relevant for intraday traders as they don’t need to know historically what has happened. But this data is relevant for swing traders and also investors.

So by looking at how many stocks are advancing and declining daily or monthly, when you click on this, you can see the breakdown of all these previous days and months. So it gives us a much better understanding of what is the broader context of the market.

Are we in a strongly bullish market or a strongly bearish market? So I would advise you to spend some time here, come back here, download some of these reports and go back and see, right? Like what was the context back in 2014 or 2013, you will know so much. And, if you plot this information on Excel, you will have a much better understanding of how the advances and declines and how the market sentiments have changed over the years and during different bull markets and bear markets.

So I like these screens very much, but there is one little problem. And the problem is that the numbers that I’m seeing here or here or even here, these numbers are just numbers. But if I have to use this information for an intraday trade, I come back every 5 minutes or every 10 minutes or 15 minutes and keep checking these numbers.

And I have to keep in my head what was the number that I saw the last time, or I have to write it down somewhere. So even though the information is out there, but to process that information for an intraday trader, becomes a little hard. So that is why I recommend you to explore this second website that is traders Cockpit. So when you come to traders cockpit, and this is what this website looks like, you can see the same information in a visual format. So this is a very nice little chart, which I like where you see the green line here that shows the number of stocks that are advancing. And the red line shows those stocks that are declining.

So when the information of advances and declines is presented in this visual format, it becomes pretty easy for me to process it. Okay. Yeah. So it looks like after 11 AM, the market became very bearish. And throughout the day, the stocks were declining much more than the stocks that were advancing.

And that becomes a very important factor in deciding whether to take a long trade. Or if you take a long trade, like in my case, whether you should be having aggressive targets or small reasonable targets so that you can quickly get in and get out of your trade. So this chart is the reason that I had a very humble target of just getting 50 points, Rs.50,000, taking the money and getting out of the market without staying there for too long and risking my profits. Now this little note that I want to highlight, and that is that the number of stocks that this website analyzes, is somewhere around 1500 stocks whereas what we saw in the case of NSC, where the total is about 2000 stocks.

So there are about 500 stocks that are incorporated in these stats, which are not incorporated in the starts given by this website which is not necessarily a bad thing. It’s just basically the way that they have presented the data. In my experience, this chart gives me a fair enough idea about the sentiment of the market.

I would have wished it to be the same, like these numbers to be the same as NSE’s website, but for some reason, they are not considering those 500 stocks, but just fine I guess. But at least you should be knowing about this. So, guys, this is it. This is what I wanted to share in this particular video.

But there are a couple of things that I will say before wrapping up this video. That a lot of you, when you see advances and declines, kind of very simple indicators, you get the feeling that, you know, this is so simple. How effective can this be in real life? So we tend to look for more complicated, more technical indicators, but I want to give you one very simple piece of advice that in trading, especially in intraday trading simplicity should be preferred over complexity.

And so don’t underestimate the power of simplicity. That’s number 1. Number two, that apart from advances and declines, there are at least five more indicators that are very useful in gauging the sentiment of the market. And I will be covering more of that in the subsequent videos. So hopefully if we get enough feedback and if we get enough encouragement for this video, we will do more of them.

So keeping these two things in mind, I will wrap up this video and hope that you guys learned something new today.

How to Read Market Sentiments Using Advances and Declines?

So guys, welcome to VRD nation. Through this channel, we are trying to develop a community of smart investors and traders by sharing knowledge, sharing our experience, using practical, real-life examples, case studies. Great. So if you’re new to this channel, do not forget to subscribe. All right.

So having said that let’s get started. So guys, in this session, we will focus on how to read the market sentiment and we’ll do this using this practical life example right here and I will explain how my understanding of the mood of the market helped me manage to come out with a profit of 50,000 rupees.

So this is not a theoretical concept that we’re just learning in the books. This is a very practical concept that has to be applied in real-life trading. So the first question that we need to answer is that what are market sentiments and why is it important to pay attention to them? See if you want to be a successful trader, you need to develop a solid understanding of the sentiment in the market.

And I can tell you from my own experience, that when I started trading, I had no sense of the sentiments in the market. I was looking at my own set of data, my own set of indicators, but I was not paying attention to the sentiment in the market. And what was happening because of that, is that in the extremely bearish sentiment markets, I was taking long trades and in an extremely bullish sentiment market, I was taking short trades and because of this mistake, I was losing a lot of money.

But later I realized that it’s very important to have the pulse of the market. And one of the most common ways for understanding the sentiment in the market is advances. Now, this particular indicator, I started using, about 12 or 13 years ago.

And from that date until this date, I use it daily. I don’t place a trade without looking at the advances and declines. So what exactly are these advances and declines? Well, advances and declines in very simple terms mean that how many stocks are moving up versus how many stocks are moving. So if more stocks are moving up as compared to those stocks that are falling, it means that the sentiments in the market are bullish.

And of course, if more stocks are declining as compared to two stocks that are advancing, it means that the sentiments are bearish. Now, this advance to decline analysis can be done on different timeframes. You can do this daily, weekly, monthly. So for long-term investors, for example, will look at a longer timeframe.

But I think this analysis of advances or declines is most applicable for intraday traders. So if you are an intraday trader, you need to keep an eye on the advances and declines because your trade can get into trouble if you’re swimming against the tide. Now a perfect example of that will be today’s trade.

So this is the chart of nifty future, and this is a 5-minute chart. On this chart, somewhere around 12:35 or 12:40, I got a signal for the long trade. And as soon as the signal came, I had to make two decisions. The first thing that I wanted to know was that how were the sentiments in the market?

So if I have to take a long trade, I don’t want to be taking a long trade in a strongly bearish market. And the second decision that I had to take was, should I be taking this straight on nifty or should I be taking this trade on bank nifty? So what I found was the sentiment in the market was not very strong.

So there’s also a possibility that the market would turn and then, you know, the things will get more bullish. But at the time I got this long signal, I did not have clear visibility of whether these sentiments are going to turn bullish later in the second half or not. And as far as the decision of taking their trade on nifty versus bank nifty, it was very clear that if there was any long trade, the long trade had to be taken on nifty, not bank nifty because the sentiment in banking stocks was very bearish.

So based on this information about the sentiment in the market, I concluded that yes, I will take a long trade. But the trade will be on nifty and the profit target for this particular trade is going to be something much more reasonable. I cannot be very aggressive. So I had a very humble target of about 50 points.

So if I get 50 points on nifty, I will be more than happy. Or if the absolute profits, will go up to 50,000 rupees, I will book my profit and I will come out. So with this understanding, I took a long trade on nifty at somewhere around 12:40, and I exited the trade somewhere around 1:10. As soon as I saw the profit of fifty thousand, I came out.

And if you take a look at this particular chart of the option that I shorted, you will understand the importance of my exit. So, the trade was taking somewhere around here. So at 160 rupees, I took a short trade on this put option, which meant that I went long on the market. And I exited somewhere around.

I bet, I guess, somewhere around here, a hundred and thirty-five. So, this is where I made somewhere around 50,000 rupees, but take a look at what happened next, right. Immediately after I exited, the market bounced against me. And my Rs. 50,000 profit would have gone down to zero. And then of course, from there it went down, but you can easily imagine if you’ve ever traded having an unrealized profit and letting that unrealized profit go back to zero can be a very stressful experience.

So basically what helped me was the understanding of the sentiment in the market. And also the fact that it helped me come up with a reasonable target and not to be too aggressive in a market, which is not exactly in the right kind of sentiment for the trade. So of course it all worked out and I made some profit and going into the weekend. It is always a good thing.

But the question here arrives that. How did I assess the sentiment in the market before making that trade? Number one and number two is how was I able to differentiate whether to take a trade on nifty versus bank nifty. So for understanding that, I will tell you about two great websites that I use for tracking the market sentiment, not just in the market itself, but across the different sectors in the market.

So the number one website that you have to keep on your radar for advances to declines is NSE India.com. So, this is like the mother of all trading websites. So you need to go and check out NSE india.com. So let me show you guys on the NSE’s website, the first screen that you have to pay attention to will be that of the live market, where you can see the overall advances and declines.

So as you can see here, that 762 stocks were advances and 1,216 stocks with decliners mean they went down compared to the closing of the previous days. So clearly the number of declines was higher, much higher than the number of advances and 77 stocks basically remain unchanged. So when you compare the number of advances to declines, you get an understanding of in general whether buying is coming in this market or selling is coming in this market. There is one little detail that you need to understand, and that is this little star here, right? So they have some notes at the bottom, which explains what this star means. So here, this note says overall advances to declines for the normal market during trading hours is concerning the last traded price and at the end of the day is based on the closing place, which means that if you are looking at these numbers on an intraday basis, these advances are concerning the last traded price of those stocks. So let’s say one minute back or half a minute back, whatever was the last-minute price with respect to that, whether the stocks have gone up or the stocks have gone down.

So that is the case in an intraday context. But if you are looking at these numbers at the end of the day, which is what we’re seeing right now at 4 o’clock, then the comparison is not on an intraday basis, it is concerning the closing price of the previous trading session.

So that is a very important differentiation that you need to keep in mind. Number one, number two, that these numbers that we are seeing right here, are the overall advances and declines that are for the overall market. But what about, the advances in declines concerning a particular sector. So for that, you have to come to the index wise advances and declines. So when I click here and you come to this screen, you can see that for nifty 50 stocks, I can see that within these 50 stocks, 15 were advances and 34 were declines. It means out of the 50 stocks, 34 stocks came down, 15 stocks went up and one of the stocks remained unchanged.

So clearly it tells us that the sentiments were bearish at almost double more than the Stocks for declines. But remember that example that I took earlier, where I explained that when I was trying to decide between nifty and bank nifty, I decided to go with nifty, but not bank nifty. Why? Well, let me show you why.

So now if I select nifty bank here, take a look at this. In the nifty bank, out of these 12 stocks that are part of the nifty bank, only two stocks were advancing and 10 stocks were declining. So clearly it tells me that the sentiment in the banking stocks was much more bearish as compared to the sentiment in nifty.

Now the third screen that you have to keep in mind when it comes to advances and declines is the historical data of advances and declines. Now, this is not going to be relevant for intraday traders as they don’t need to know historically what has happened. But this data is relevant for swing traders and also investors.

So by looking at how many stocks are advancing and declining daily or monthly, when you click on this, you can see the breakdown of all these previous days and months. So it gives us a much better understanding of what is the broader context of the market.

Are we in a strongly bullish market or a strongly bearish market? So I would advise you to spend some time here, come back here, download some of these reports and go back and see, right? Like what was the context back in 2014 or 2013, you will know so much. And, if you plot this information on Excel, you will have a much better understanding of how the advances and declines and how the market sentiments have changed over the years and during different bull markets and bear markets.

So I like these screens very much, but there is one little problem. And the problem is that the numbers that I’m seeing here or here or even here, these numbers are just numbers. But if I have to use this information for an intraday trade, I come back every 5 minutes or every 10 minutes or 15 minutes and keep checking these numbers.

And I have to keep in my head what was the number that I saw the last time, or I have to write it down somewhere. So even though the information is out there, but to process that information for an intraday trader, becomes a little hard. So that is why I recommend you to explore this second website that is traders Cockpit. So when you come to traders cockpit, and this is what this website looks like, you can see the same information in a visual format. So this is a very nice little chart, which I like where you see the green line here that shows the number of stocks that are advancing. And the red line shows those stocks that are declining.

So when the information of advances and declines is presented in this visual format, it becomes pretty easy for me to process it. Okay. Yeah. So it looks like after 11 AM, the market became very bearish. And throughout the day, the stocks were declining much more than the stocks that were advancing.

And that becomes a very important factor in deciding whether to take a long trade. Or if you take a long trade, like in my case, whether you should be having aggressive targets or small reasonable targets so that you can quickly get in and get out of your trade. So this chart is the reason that I had a very humble target of just getting 50 points, Rs.50,000, taking the money and getting out of the market without staying there for too long and risking my profits. Now this little note that I want to highlight, and that is that the number of stocks that this website analyzes, is somewhere around 1500 stocks whereas what we saw in the case of NSC, where the total is about 2000 stocks.

So there are about 500 stocks that are incorporated in these stats, which are not incorporated in the starts given by this website which is not necessarily a bad thing. It’s just basically the way that they have presented the data. In my experience, this chart gives me a fair enough idea about the sentiment of the market.

I would have wished it to be the same, like these numbers to be the same as NSE’s website, but for some reason, they are not considering those 500 stocks, but just fine I guess. But at least you should be knowing about this. So, guys, this is it. This is what I wanted to share in this particular video.

But there are a couple of things that I will say before wrapping up this video. That a lot of you, when you see advances and declines, kind of very simple indicators, you get the feeling that, you know, this is so simple. How effective can this be in real life? So we tend to look for more complicated, more technical indicators, but I want to give you one very simple piece of advice that in trading, especially in intraday trading simplicity should be preferred over complexity.

And so don’t underestimate the power of simplicity. That’s number 1. Number two, that apart from advances and declines, there are at least five more indicators that are very useful in gauging the sentiment of the market. And I will be covering more of that in the subsequent videos. So hopefully if we get enough feedback and if we get enough encouragement for this video, we will do more of them.

So keeping these two things in mind, I will wrap up this video and hope that you guys learned something new today.