With trading growing in popularity and a host of tools, strategies and insights playing a major role in investments, it can be difficult to ascertain what to use to help boost endeavours.
Right now, market sentiment is climbing the ranks in worthwhile analysis methods, as it works to gain a general idea of the attitude of investors about specific securities, investment vehicles and the financial market on the whole.
Investors should be aware of how sentiment impacts the financial market, and how it effects traders and their efforts. In essence, the most profitable price moves are often seen when sentiment drastically changes (this can be tied to switches from bullish to bearish activities, or vice versa). What it does is provide context when trading – and this is proving to be more and more crucial when individuals and companies want to be more successful.
Methods of sentiment analysis
The good news is that there are quite a few worthwhile methods of analysis and market sentiment indicator information can be widely applied. The top two are fundamentals and immediate news analysis. Traders can research:
- The Commitment of Traders (COT) report
- Relevant polls and surveys
- Chart patterns
- Historical data
- Market capitalization and P/E ratio
- Social media trends
- Stock overview
There is a myriad of specialised sentiment analysis software out there, including Natural Language Processing AI, that can enhance trading strategies alongside sentiment analysis.
Stock sentiment isn’t a market indicator, as much as a supporting methodology that gives deeper insight into the behaviour and psychology of investors. It’s best used in conjunction with other forms of analysis and trading tools for the most worthwhile results.
Benefits of using sentiment analysis
- Trader sentiment can uncover hidden trends in the stock market
- If sentiment improves, prices will rise (or at the very least, stop falling), so understanding it can be extremely worthwhile
- Combining sentiment with other analytical tools can boost productivity and offer more detailed and insightful trading results
If you’d like to find out more about sentiment trading, its applications, methods, and bullish and bearish sentiment click here.