What is Sentiment
Market sentiment refers to the highly subjective feeling about the state of a market. It is the overall emotion that traders and investors have in regards to the price action of a particular asset.
Basically, there are several factors to the market sentiment. The information obtained from technical and fundamental analysis indexes may be included. Media and the history of prices may also have a part to perform.
Even when closely connected, it is worth mentioning that there is a difference when speaking of market sentiment and fundamental analysis. Whilst the sentiment is linked to psychology and emotional responses, FA is linked to a specific company or project performance (e.g., reputation and market capitalization).
A true reflection for potential short and half-term price movement is the actual definition of market sentiment for many traders and graphic artists. Usually, the market tends to overturn and to move in the opposite direction if the feeling is too hopeful (like bullish) or negative (like bearish).
That means that if most traders are pessimistic, the market tends to grow, and if the overall feeling is more bullish that would be taken as normal. Because of that, market feelings can often function as a kind of counterpoint.
Sentiment is one of the counter traders' needs. If the majority of persons are bullish, sales or short cuts are considered.However if the sentiment goes bearish, you will think about buying or entering up a great position.
All in all, the feeling of the market is due to the two main emotions which influence financial markets which are no other than fear and greed. Likewise, a significant element of market fundamentals is the market sentiment.
Lately, the findings of fields like behavioral finance and economy have been used to efficiently identify and evaluate the perception of the market.