What is the market sentiment?
Market Sentiment or also known as market sentiment refers to the overall attitude, what investors think, emotions, and moods of investors towards a particular financial market. In the Cryptocurrency market, this attitude is an accumulation of many factors including price fluctuations, news, national and world events, investor sentiment, etc.
- If investors expect prices to go up in the cryptocurrency market, then the Market Sentiment is said to be Bullish.
- On the contrary, investors expect the price to go down in the cryptocurrency market, then the Market Sentiment is said to be Bearish.
In other words:
- The rising price indicates Market Sentiment Bullish.
- Falling prices indicate Market Sentiment Bearish.
Market Sentiment in Bullish & Bearish
The figure below depicts investor sentiment during a market cycle. Although it refers to the US stock market, them to be true in the Cryptocurrency market.
Market Sentiment in Bullish
Not only the Cryptocurrency market but all financial markets go through bull and bear cycles. When the market is in a bull phase, the market sentiment will be upbeat, filled with confidence and greed. Usually, these are the main emotions that lead to exciting trading activity in the Cryptocurrency market.
When trust and greed are too great, it will often push the market to overestimate, this is how financial bubbles form. In such a situation, many investors lose their thinking, forget the actual value and buy a coin & token just because they believe that the market will keep going up.
In some cases, a strong bull market will then move sideways for a while as assets are sold gradually. This is also known as the distribution phase. However, some cycles do not present a clear distribution phase and the downtrend begins shortly after the peak is reached.
Market Sentiment in Bearish
When the market begins to shift from bullish to bearish, investor euphoria can quickly turn to skepticism, as many traders refuse to believe that the uptrend is over. As prices continue to fall, market sentiment will quickly turn negative. This mentality often includes feelings of anxiety, denial, and panic.
Against this backdrop, investors begin to question why prices are falling, which will soon lead to a phase of denial. The phase of denial is expressed in terms of feeling unacceptable. Many investors insist on holding a losing or holding position because “it’s too late to sell” or because they want to believe that “the market will bounce back soon.”
But as the price falls, the stronger the “panic sell” wave becomes.At this point, fear and panic often lead to market abandonment (bottom selling).
Eventually, the downtrend will stop when volatility decreases and the market calms down. Usually, markets go through a sideways phase before feelings of hope and optimism begin to emerge again. Such a sideways phase is also known as an accumulation phase.
How to analyze Market Sentiment?
Market sentiment at one point was the general sentiment of the vast majority of investors in the market. To get a feel for it, you will need to gather the views, ideas and opinions of market participants. While it can be helpful, you should not rely solely on analysis of market sentiment to make investment decisions.
To get a basic feel of the Cryptocurrency market, You can use many methods such as following the famous KOL on Twitter.
Additionally, you can view relevant social media pages and channels, to understand what the community and investors are feeling about each particular project.
You can also join their communities, Telegram groups to talk directly with the project team and community members,…
In general, you should combine technical, fundamental, and Market Sentiment analysis to better understand short-medium and long-term price action, develop better control of your emotions, and search for investment opportunities with high returns.
Read more: WHAT ARE FUNDAMENTAL ANALYSIS & TECHNICAL ANALYSIS?
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