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The AAII Bull Ratio is a sentiment indicator created using the famous AAII sentiment survey. A survey, in which, the American Association of Individual Investors (AAII) asks, every week, its members about their view on the direction of the stock market in the near term. Using the percentage of members who are bullish and the percentage of members who are bearish, this sentiment indicator tells us whether the general market sentiment is optimistic or pessimistic.
The AAII Bull Ratio is computed by dividing the percentage of bullish investors by the sum of the percentage of bullish and bearish investors, excluding neutral traders. The data spans from 1987 to present; this means that you can display data for more than 20 years.
To compute this composite index, you will need first to download historical data of the AAII sentiment survey. To do this, download then execute AAII Sentiment Survey - Historical Data.
A high AAII Bull Ratio number indicates that there are more bullish than bearish traders, while a low AAII Bull Ratio number indicates that there are more bearish than bullish traders. AAII Bull Ratio can be used as a contrarian indicator, which means that a high or low number is a sign that a market turn is near and that stock market direction is likely to change or reverse in the coming days.
The best way to use this composite index is by smoothing it with a simple moving average. This will reduce data noise and make trends appear clearer.
After the composite is created and calculated, a ticker symbol, whose name is "_AAII_BULL_RATIO" is added to your database. You can use and work with this symbol as with any stock or any other asset symbol. This includes using it in trading systems, to create trading rules, to compute other composites...
Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
