What Is Market Sentiment?
No matter if you are a beginner or an expert, market sentiment is not a new term introduced to you. We all know about market sentiment and its definition. But still, there is something more important to know about market sentiment. We cannot explain and finish the explanation of market sentiment in just a few words or sentences.
Market sentiment can be the center point of focus in the whole trading session. Sometimes market sentiments are more important to know as compared to tracking market trends. There are different market sentiments. Basically, we know them by two types only.
The most popular market sentiments are bullish and bearish market sentiment. But you can find other market sentiments also. There is more information related to market sentiment and its types.
Let’s dive deeper into market sentiment
So here we are with detailed information about market sentiment. Because market sentiment plays a significant role in making your forex trading profitable.
Everybody wants a good return on investment through trading. Some retail traders follow the trend, while some traders follow their own trading strategy. But the question is what is the better way to trade any asset in the market? Is there anything more important than the market trend? What you should follow?
A trend is important for you or you should make an individual trading strategy for you? There are many questions and all of your questions will be answered in this post. We will let you know how you can enhance your trading with market sentiment.
Also, you will get to know about making new trading strategies for you with various market sentiments. So without wasting time anymore, let's get to the point of sharing this post with other traders in your community also
Understanding Market Sentiments
First of all, we need to know more about market sentiments. As we have mentioned earlier that market sentiment is not a trend which we see in the market. Sometimes more investment instruments are performing well in the market, but still, the market sentiment is not bullish.
So what makes a market sentiment bullish or bearish? How can we calculate the market sentiment and how to utilize the market sentiment while making decisions? Most of the beginner level traders assume market sentiment as one of the most common, easy and less important market sentiment. But it is not that less important.
Here you will find all the information related to market sentiment. This information is more important to know as compared to just two common terms bullish or bearish.
Market sentiment is a movement of the whole market index in a particular direction. We all know that there are basically two directions and movements in any market. So, on a major basis, there are only two market sentiments. We will discuss these two market sentiments later in the next section.
So let's talk more about the market sentiment. Market sentiment is basically used to show that in which direction the market is going. And the best part is that there are basically two directions only. The market can go up or the market can go down. To indicate that how the market is performing these two directions are used as indicators.
Types Of Market Sentiments
As you know that market sentiments can go in two directions only. However, sometimes we find that the market is not too bullish or not too bearish. Which means that the market is neither going down quickly and also it is not going up.
In such situations, most of the traders call it a neutral situation of the market. But it is very rare when you see a market stable for hours. So below are the two major market sentiments used. These market sentiments play a significant role in any trading portfolio.
Bullish market sentiment is used to indicate the market which is going up. Bullish words are derived from the behaviour of a bull. You can also see the bull (animal) picture on many stock exchanges. So whenever someone is claiming that the market is bull, it means that the market is going up or the market is supposed to go up anytime during a particular time frame.
Now the next market sentiment is bearish. The bearish sentiment is just opposite to the bullish one. It indicates that the market is going down or supposed to be going down.
This sentiment is used mostly to buy new assets. However, it depends upon the trading strategy that you are using. Your strategy will decide whether you need to sell or buy the assets during which sentiment.
Market Sentiments Vs. Market Trends
Most of the traders get confused when they talk about market sentiments or market trends. They think that market trends are similar to market sentiments. No doubt these two terms are correlated strongly with each other. Also, they indicate the same thing about the market. But both of them are a little bit different in usability.
Market sentiment is about the directional movement of the whole market. While on the other hand market trends are showing the trends about a particular segment, a group of assets or a part of the market.
How To Measure Market Sentiment?
Basically, there are many expert websites, blogs or podcasts out there to help you find the right market sentiment. You will be notified by the new section, whether your market sentiment is bearish or bullish. But still, there are requirements to find the market sentiment on your own. To find out the market sentiment on your own, you need to use the indicators.
Major Indicators Used To Find Market Sentiment
Following are some common indicators you can use to find the market sentiment. Also, these indicators can be used to enhance the trading strategy of yourself. So without any delay, start learning more about these important trading indicators.
The VIX is one of the most common indicators used to find market sentiment. VIX is directly linked up with the emotion of fear among traders. That is why VIX is also known as the fear index. In this index, more traders start protecting or insuring their assets, as a result, option price moves up.
Bullish Percent Index
It shows that when some stocks or assets are overbought in the market. The neutral market has a BPI of 50%, which is normal for the market. But when the BPI goes up to 80% it is clear that the market is overbought. On the other hand, when BPI drops to 20%, it means that the market is oversold.
The High-Low Index
As its name suggests, in this indicator the high-value stocks and low-value stocks are compared in a way to find the market sentiment. When this index is going up to 70, then it means that the market is bearish. On the other hand, when the high-low index goes down to the value of 20, it means that the market sentiment is bullish.
Moving averages are a very common source of information for the traders. To find market sentiment with the help of moving averages, the traders compare a 50-day simple moving average with a 200-day simple moving average.
A golden cross statement is given when 50-day SMA crosses the 200-day SMA. It will be a bullish market sentiment with a golden cross. However, in a death cross situation, it will be a bearish market sentiment.
You can see that market sentiment is not just bearish or bullish. There are a lot of things that you need to know about market sentiment. If you include market sentiment and its effects in our trading strategy, then we can get many benefits out of it.
The market sentiment has a lot of useful information for you along with it. This information can be used by traders to make decisions. The indicators that help us to find market sentiment can be an important part of our trading strategy.
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