Posted by & filed under Behavioral Finance, Rethinking Finance.

Once identified the meaningful level to determine if the ticker’s price is cheap or expensive, our “rethink finance journey” sees the evaluation of a second component in the algorithm questioning process: the Sentiment.

Did you miss the first component? Here it is !

For the moment, the signal creation process has provided a clear target, showing us where should we focus our attention from now on. Then, what it is going to ask the algorithm is: “is this momentum going to carry on in the same direction, or is it changing or going to change somehow?”

Lost in translation? Visit our Terminology page and solve every doubt: Quantesys Terminology

Let’s explain the concept with an example.

Let’s assume we are on the golf course and the flight path of the ball we just hit is the momentum: at every single instant, we can tell how the ball will fly afterwards, if it will carry on gaining height or if it will start going down.

Rethink finance: Sentiment

As you can clearly see, there are many different possible scenarios that can influence the final signal evaluation (which will be done during the last VSR step, the Rational). All of them are linked to the converging or diverging behaviors of the different investors.

Also remember that, in this specific case, I have shown you the momentum for a growing ticker: the exact same thing is applicable in the opposite situation, when the ticker is decreasing and the target level is the lower one. Just imagine the ball’s flight trajectory as it would be mirrored in the water of a golf course lake.

Next time I will show you the last signal creation component and some meaningful examples that will surely help you finally rethink finance.

See you next post and, of course, keep following us toward our rethink finance crusade!

Alberto Ravandoni

Marketing & Communication at Quantesys
To effectively capture the attention, you have to create valuable content, spread it toward the right audience at the right moment and with a pinch of irony.