Technical Analysis

Reading market sentiment

Nikhil Kamath | Updated on August 24, 2014 Published on August 24, 2014
The decline in business confidence was driven by weaker domestic demand. File Photo

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If you wished to track the market sentiment, there is an easy way to do so now. Zerodha has created a real-time, crowd-sourced, market sentiment index called crowd index.

This index is available at www.crowd.in. Input from a number of traders and investors is used to compute this index that attempts to predict market direction every day. The project takes the format of a contest-cum-game, where users participate by submitting their predictions of daily CNX NIFTY spot closing prices.

Points are awarded to participants based on the accuracy of their predictions at the end of each day.

To incentivise and encourage participation, these points translate to cash rewards of up to ₹1 lakh at the end of every trading week. The participants need not have any prior experience in finance or stock market trading.

Increasing awareness

One of the main motivations behind The Crowd Index is to spark interest and raise awareness in people who generally tend to shy away from the idea of participating in financial markets.

The open, contest like format of the project may help drive curiosity and increase public participation.

Moreover the project coincides with stock exchanges in India pushing for increased retail participation and the Government announcing schemes such as RGESS (Rajiv Gandhi Equity Savings Scheme).

The huge number of predictions on The Crowd Index are collected and collated in real time and made available as a moving graph of live market sentiment, plotted against C&X NIFTY, on the Crowd website. The live market sentiment of the participants is plotted on a gauge that swings between bearish and bullish zones.

The winners

In the contest, the top performers — those who have been accurately predicting daily NIFTY closes within a range of five points — are ranked on leader boards.

A weekly leader board tracks the potential winners who’ll receive cash rewards at the end of the trading week, and an all-time leader board displays rankings of the top performers since the beginning. Participants can overwrite their predictions any number of times during the day.

However, by doing so, the number of points they could potentially earn are reduced.

It is to be seen how the sentiments of a large section of people who might not be active market participants shape up in relation to market movements.

The entire dataset will be available in the public domain to researchers and analysts. This data can be used to view the market from a unique perspective factoring in the sentiment of the crowds, which is generally not an easy parameter to gauge or access.

The writer is Director, Zerodha

Published on August 24, 2014
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