Market sentiments are the driving force that can influence the demand and supply as well as move the price. This is why it can be both bullish and bearish depending on the movement direction. For instance, sentiments can be bearish, if the price falls or bullish when it rises.
To identify and define sentiments, traders utilize an array of technical indicators integrated into the trading platform or framework. Additionally, they can opt for extra tools and forms of analysis that make it possible to refine reliable signals for market entry or exit. If an investor is able to recognize the mood correctly. It will help to get maximum return.
In this article, we will not only define sentiments meaning but also review some of the top indicators traders use to understand them.
The sentiments meaning corresponds to the investors’ mood or attitude in references to a specific instrument, asset, or security. The term could be described as traders’ feeling about the market tone that also reflects the overall market psychology depending on the price activity and movement.
To make things a bit simpler, when the price goes up, it represents bullish market sentiment. If it falls, it shows a bearish market tone. The key features to consider when defining the sentiments meaning are as follows:
Also known as “investor sentiment”, is a part of the trading fundamentals. It can influence technical indicators. This is why technical analysts and day traders use it regularly. It makes it possible for them to measure not only short-term movements of the asset price but also profit and potential returns. The results will generally rely on the overall investors’ mood and attitude towards a traded security.
At the same time, sentiments appear to be a helpful tool for so-called contrarian investors. Those are traders who tend to oppose the general market movement. In other words, if the majority of people buy an asset, contrarian traders are very likely to sell it.
Experts are used to describing sentiments as bearish or bullish. The concept is quite simple:
While the financial market is often driven by participants’ emotions, we cannot say that sentiments can fully rely on fundamentals, as they mainly refer to business performance. On the other hand, investors find it possible to identify over and undervalued stocks using sentiments. It can be achieved with the help of different technical (sentiment) indicators.
The following can be used to measure market sentiments and define the overall market mood as well as if it is bearish or bullish:
Those are only a few tools to measure sentiments. You may opt for moving averages and some other indicators. Just make sure you apply proper reading and some fundamental knowledge to put all facts together and decide on the next move.
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.
