Market Sentiment

Market sentiment is a psychological attitude that captures the mood and attitude of investors, usually towards a specific security or asset.

This sentiment can be segregated into a bullish or bearish mood in the market. As such, certain trading activity or price behavior will also impact market sentiment.

For example, bullish sentiment indicates a growth in the price of securities, whereas a bearish sentiment sees falling prices.

Many traders use broader market sentiment or sentiment data to help identify trends that may not seem apparent to many other investors.

This can give way to investor sentiment indices or contrarian signals surrounding assets, which helps inform investors to make more educated decisions.

Using Market Sentiment

Market sentiment is not always grounded in fundamentals and for this reason is seen as inferior to other methods trading.

This form of investing instead deals with emotion and feelings of traders.

However, many traders, specifically shorter-term investors, will rely on market sentiment.

Sentiment traders put a lot of merit into these trends, just as other investors look for specific signals or fundamental barometers to inform their decision making.

This is due to the powerful impact of sentiment on short-term indicators or attitudes. Many investors also prefer taking contrarian views and positions, actively trading against an engrained market consensus.

In this instance, if the broader market is buying a security, a contrarian investor would instead sell, and vice versa.

This is a popular technique in the stock market, which can characterize stocks as either over or undervalued, based in large part by market sentiment.