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The Public Short Ratio (or PSR) is the ratio of the number of public short sales and the total number of short sales (a "non-member short ratio", if you like). The Public Short Ratio is based on the idea that the public isn't very good at short selling, and so experts buy when the public is shorting and sell when the public is long. Statistically, there may be some evidence for this. A high PSR therefore implies a bearish public, suggesting prices will rise. If the 10 week MA of the PSR is above 25%, the public are bullish, whereas below 25%, the public are bearish. The longer the Public Short Ratio is in one of these areas, the higher the likelyhood the market will correct. Day trading systems using this indicator is difficult, as the statistical evidence suggests that price may stay in an overbought or oversold condition for some time, even longer than the timeframe of a single day. To calculate the Public Short Ratio, divide the number of public short sales by the total number of short sales. The result is the percentage of public shorts. |
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