Tuesday, January 12, 2010

ISEE Fallacy as contrarian indicator

To tell you the true I stopped looking for Holy Grail such a long time ago that I don’t even know about so many “new indicators” that might be worth looking at…but hey – I just cannot keep up with all that new stuff.  One of such indicators that never played any role in my trading is ISEE – NO, NOT the “International Society of Explosives Engineers”, and not “The International Society for Ecological Economics” (how the hell did they get so many “ISEE”s?, but this ISEE Index.

“The ISE Sentiment Index is a unique put/call value that only uses opening long customer transactions to calculate bullish/bearish market direction.”

I decided to take a look in light of my beloved TDSequential and see if any real money could have been made if using ISEE the way it is interpreted (to fade or not to fade)

Downloaded all available daily data from ISE site, loaded into NinjaTrade and, voila – here is weekly chart with DeMark indicators applied.

Even after very quick look I believe that indicator would take us out of the market in 2004 and keep in the market in 2007.  As for “quicker trades” – extreme levels appear so rarely that any meaningful use of this index is null in real life trading.


I am open for critique – if you find something I missed I’ll be glad to reconsider.

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