Psychological Index - Reaction Index

Reaction index is how much does a trader react to the market either deep green or red. Reaction index is a human psychological effect that can be factored by news, sudden change of economical situation etc. The most common correlation for STI is Dow Jones results the morning before, Nikkei opening (-1 hr SG Time) and Hang Seng opening (+1 hr SG Time).

For your information,
Regional Market opening hours in SG Time. (PM me if I am wrong)

Nikkei Index - 8AM
Seoul Composite - 8AM
SSEC (China) - 9AM
Jakarta - 9AM
KLSE (Malaysia) - 9AM
Taiwan - 9AM
Hang Seng (HK) - 10AM

Therefore, when Reaction Index high means market is more volatile and more sentimental driven.

Reaction index ▲ Market Volatility▲

General strategy for high reaction index is to reduce short term holding. For long term investors, volatility is unavoidable therefore can be neglected if equities price does not trending downwards shown by other technical indicators.

For risk taker, more volatility means more risk and more gain. Turnover is faster but always take note of brokerage fees. Intraday shows volatility can be exploited as well.

There are a lot of general rule developed by the traders themselves when facing volatile market. Therefore it can be varied from an individual to another.

Explanation of Strategy

Volatile market is not good for new players because of emotional effects on them. If you notice, most of those who lose in volatile market is new players. This applies to contra players as well because when emotion takes control, human tends to act irrationally thus always end up at losing side. Therefore, avoid leverage, warrant, contra if the risk control is inadequate.

One good thing about high reaction index is good for picking up bargain from nervous herd. Whenever reaction index gone wrong and with some unique regional market movement, the first 5-15 minutes of market opening is good for bargain hunting.

Advanced Strategy

1. Reaction Index high with Cash Index high (for STI only)
   Smart money can be earned for the first 5 minutes of market opening provided some conditions are fulfilled. (Look for a clue for nervous market yourself, play at your own risk). When nervous investors try to jump out of the wagon, quickly grabs up some bargain buy and start to queue to sell. Holding period between buy in and queue to sell and sell price is case by case basis (NOTE: DO NOT greedy).
   
   
2. Reaction Index high with Contra Index high
   Be cautious. Force selling and margin call may followed by this. Cut loss when your target is reached. Money can be earned again but capital loss is a no-no. Take note of the volatile low cap speculative stock. Shorting can be performed if you don't believe in karma and skillful enough. If you do not have either one of these - skill, luck, money to hold, can consider cut, stop and wait.