Always perform a sentiment analysis
Do not lose what the sentiment analysis is able to bring into the table
Sentiment analysis is an aggregation of public opinions, viewpoints, feelings, mood, impressions, and forecasts that create the market psychology at a point in time. Market sentiment cannot be measured, there is no specific way how to conduct it. However there are certain indicators which can be combined and later produce what is called market sentiment. In short-term trading, investors and traders are driven by two particular emotions – fear and greed. They usually manifest one of the emotions as a form of psychology. The fear of missing out (FOMO) will make the traders buy assets, not because this action might be profitable, but because they want to avoid the feeling of missing out. During a falling market, traders will sell the stock at a lower price compared to their value, just because they are afraid of losing money.
Market sentiment is a developing technique which is able to bring significant contribution to complement fundamental and technical analysis. Sentiment analysis is the most successful method which includes the effect of human emotions and psychology in a trading analysis and strategy. Calculations show that investor sentiment is the most well grounded indicator of future price fluctuations. Sentiment analysis is a qualitative measure of the investors attitude, mood and appetite to take risks in financial markets in general and certain assets in particular. Positive and negative sentiment direct price movements and also create potential trading opportunities for daily traders and long-term investors.
Some traders might be expecting a certain asset move for an underlying asset, meanwhile some others might be expecting different results. Even if the circumstances might not be on your side, you can still turn the situation on your favour. What prevents traders by doing so? Well, emotions! Fear, greed, their personality, their courage to take risks. It can be described as the overall opinions, views and mood of the public which make in total the market psychology. There is no exact way to measure the public feelings toward financial markets in total or a particular asset, so we cannot say that there is a correct or incorrect way to define sentiment analysis. But, there are other paths which can reflect the overall mood of the traders.
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