The mentality of investors and their perception regarding a given investment product can make or break its market value. Historically speaking, the biggest scams such as Tulip Mania and the Madoff case perpetrated investors based on a positive market perception.
This article is going to shed light on the phenomenon called Market Sentiment and how investors can benefit from it.
What is Market Sentiment?
When it comes to trading, every broker and trader wishes to have a magic 8-ball that allows them to peek into the future. It is impossible to predict the future but analysts and quants emulate market movement by reading the market sentiment. Market sentiment is the measure of overall market emotion that can dictate the price of a given asset class.
If the investors have positive expectations from an asset, the market sentiment can turn bullish leading to increase accumulation and price hikes. The exact opposite can take place when market sentiment turns negative.
How to Read Market Sentiment?
Market Sentiment is usually preferred by short-term trading ventures such as Day Trading and Scalping. Investors can predict the smallest price fluctuations by quantifying the market sentiment in addition to technical analysis. Here are some important ways to collect useful data for deducing market sentiment:
Use data collection tools on social media sites with a focus on the asset class communities such as crypto markets.
Get connected to the top crypto media sites to stay updated about the latest market developments. Some of the best crypto news websites are namely CoinDesk, Cryptopolitan, The Block, The Medium, CoinTelegraph, etc.
Access crucial market sentiment metrics such as the Fear and Greed Index. Many crypto analytics and tracking services offer these readings for free. At the same time, the Fear and Greed index is a great way to define the overall inclination of the crypto market regarding the cryptocurrency markets.
Use Google Trends as an ideal tool to measure the most talked about and top-searched projects. This simple metric is one of the best methods to find out the cryptocurrencies that have the greatest interest among investors at any given time.
Follow cryptocurrency influencers on social media. It is important to use influencer advice with a grain of salt. However, influencer endorsement or rejection can greatly impact the market sentiment positively or negatively among investors at large.
Role of Market Sentiment in Crypto Markets
Here are some of the most visible and practical benefits of using Crypto Market Sentiment as a driving force to make trading decisions:
Market Sentiment allows investors to accurately predict short and medium-term cryptocurrency price movements. In this manner, investors can generate massive profits within the short-term by perfecting their market prediction prowess.
Market sentiment is a positive psychological factor that negates its harmful impact on a personal scale. Investors train to avoid depending on inherent emotional inclinations and try to decipher the market sentiment projections as perfectly as possible to maximize their profits and avoid losses.
Market Sentiment can assist investors in mitigating their trading risks. When investors are working with short-term trading strategies they run a massive trading risk. However, the investors who have cracked the market sentiment code can reduce their risk standing significantly and increase their chances of scoring gains.
Market Sentiments are best for leading the trading strategy in a positive direction. Investors depend heavily on market sentiment to guide their trading plans and place bets at suitable and viable locations.
Market Sentiment often guides technical analysis. Without market sentiment, it can become very difficult to conduct technical market analysis or drive any useful results from it. Technical analysts often use historical market sentiment trends to base their latest market projections.
Market sentiment is not only useful but it is also easier in comparison to technical and fundamental market analysis. Investors who are starting can gain massive advantages in their trades using market sentiment. However, for the most accurate results, investors should always use a combination of all of the aforementioned analytics techniques.