One of the most important gauges in Stealth Trader© is its Perception Gauge.
The position of this gauge could vary between the two extreme points: “Overbought” and “Oversold” indicating that either the Bullish Sentiment has reached its exhaustion level (Overbought Level) or the Bearish Sentiment has reached its exhaustion point (Oversold Level). The position of this gauge is determined by a number of factors, including:
· The relative frequency of the order cancelations registered on the Bid side of the order book vs. those registered on the Ask side of the book.
· The traded price deviation from its equilibrium level calculated using the prices and sizes of “Filled” orders
· The relative frequency of order size changes vs. their level in the order book.
All of these parameters are processed in real-time using highly sophisticated computer algorithms. The results of those computations are then presented through the value of the extreme Overbought/Oversold sentiment levels and the position of the current Sentiment Line relative to those extremes. The background of this gauge also is color coded to help promote the development of appropriate associations related to this gauge positions.
When the gauge’s needle is in the “Overbought” area (above the red marker) it is very probable that there is a temporary saturation of the Ask side of the book. In other words, if the gauge’s needle is at the top of its scale it is a good time to consider selling this security, provided that all the other gauges are in agreement with this decision. Conversely, if the gauge’s needle is at the bottom of its scale (in the “Oversold” area of the gauge’s scale) it is a good time to consider buying this security.