From the very start, beginner traders are taught to use two major types of sources to generate necessary market data. They are Technical Analysis and Fundamental Analysis. We know that the first one helps to define the best trading opportunities by using the price action.
The second type (Fundamental Analysis) provides insights about a particular company’s performance as well as the global economics overview. It helps to evaluate the economic health influenced by geopolitical and other factors. What’s more, traders are able to see the over or under-valued assets.
With these two major types of analysis, traders often forget about the third one: Sentimental Analysis.
How can it be useful and how investors may benefit from sentimental indicators? Read in today's article.
Sentimental Analysis Explained
Judging by the name, it is clear that the analysis can be used for market sentiment evaluation to generate information about the asset or market direction. If you track positive data about the market health and assets, the signal is considered for the long position. A short position appears in the case of negative information generated by sentimental indicators.
Of course, the information gathered does not always mean correct signals. Besides, traders should take into account either good or bad financial news that may have a great impact on the asset price. The result will depend on traders’ interpretation of the info they retrieve. This is where market sentiment indicators may help.
What Are Market Sentiment Indicators?
They can be either graphical or numerical. They depict a specific group and the way it feels about the current market conditions. In other words, you will have a chance to see how specific positions and beliefs can influence market participants’ behavior in the nearest future.
It also depends on the asset you trade. For example, when using a stock sentiment indicator, you will be able to identify a group of buyers or sellers. As a result, it is possible to predict bullish or bearish market conditions. The price may soon start growing in case of too bearish conditions and vice versa.