Online trading entails lots of decisions, graphs, and actions. But today, we won’t be discussing that. We’ll focus on something a lot more different; the market sentiment.
But wait! Does the market have any feelings? Well, yes it does. It doesn’t matter whether you swear by technical analysis or fundamental analysis, you can’t ignore this fact. The market responds to people’s opinions, emotions, and speculation. Some of which may or not be logical.
In this article, we’ll focus on the benefits of market sentiments and how to use it to potentially make better and clearer decisions.
But what’s Market Sentiment?
Simply put, it’s an attitude that most investors have towards a specific instrument or market. That’s an attitude and feelings of not one investor but ‘enough’ investors.
So, who cares about these attitudes and feelings? Everyone does. By knowing and understanding the market feelings and attitudes, you could better draw conclusions on future price movements.
For example, decreasing prices may indicate bearish sentiment. An increase in price may signify a bullish sentiment. While these sentiments are useful to most investors and their decision-making process, they’re also essential to analysts that specialize in short-term price variations.
What Are the Market Trading Emotions?
The prevailing feelings in a market determine its entire sentiments. Different investors are conditioned to follow a specific and general price direction. Such as knowing the peak of either a bullish or bearish sentiment.
Knowing when the peak reaches is essential. It’s able to control their emotions of fear and greed. What do we mean? When the price starts to fall, many people sell their assets for fear of huge losses. Likewise, they’ll buy more due to greed when the prices start to rise. Knowing when to stop these behaviors is quite essential.
How do you Trade Market Sentiment?
Well, there are different ways to evaluate the feelings and emotions in a market. But volume is the leading one of all. It’s able to show whether the asset is falling or rising in interest.
For instance, if stock purchases are increasing and volumes are decreasing, this is an indication of a falling sentiment. But it’s important to note that getting volume for forex trade can be a challenge. That’s because these transactions take place over the counter.
But despite this, there are different indicators available for us to use. If you identify these indicators, you can determine the options that are overvalued and the ones that are undervalued. However, you’ll need to use them alongside fundamental and technical analysis for a deeper in-depth research.
Conclusion
There are different ways to measure and capitalize on market sentiment. If you do it well, you could potentially be able to ‘be ahead of the markets’.
Whereas understanding market sentiment isn’t enough to form your trading strategy, it could give you an understanding of the direction the market is going. With simple research, you’ll be able to make an better informed decision.