Momentum – ratio of rising periods over total periods
PSY, as an indicator, is the ratio of the number of rising periods over the total number of periods. It reflects the buying power in relation to the selling power.
If PSY is above 50%, it indicates that buyers are in control. Likewise, if it is below 50%, it indicates the sellers are in control. If the PSY moves along the 50% area, it indicates balance between the buyers and sellers and therefore there is no direction movement for the market.
You may also look for a divergence signal. When the stock prices make a new high (low) while PSY does not make a new high (low), it signals the divergence. You should take caution when you trade.
Sharechart Default: 10 period, 15 period, 20 period
The daily share chart for Jubilee Mines in October 2003 rose to over $4.50 where it formed a bearish divergence with the Psychological Line indicator. The share price tried to re-test the resistance before falling to approx $3.50. The share moved down to $3.50 while the Psychological Line started to move up forming a bullish divergence in December 2003. The share price then moved up to over $4.50.
The setting for the Psychological Line (PSY) for the graph above was 20 periods. It can be modified: go to Settings > Indicators > Psychological Line (PSY).
