What is Sentimental Analysis?


Market sentiment is the general behavior and attitude of investors towards the financial market or a particular stock. In general, rising prices represent the so-called bull market, while falling prices are known as the bear market.

Market emotion is related to the aggregation of behavior and activity about stocks or stock markets. To determine the measurement of market performance, indicators of technical analysis are used. In the following, we will examine this concept and methods of identifying emotions in the market in more detail.


What is market sentiment?

Market sentiment, also known as investor sentiment, is always independent of the fundamentals of stocks and companies. Daily traders and technical analysts mainly use technical indicators to measure emotions and profit from short-term price fluctuations.

Market sentiment is also important for investors who take trading positions in the opposite direction of the market, for example, these investors buy if everyone is selling, and vice versa.

Investors are mostly familiar with market sentiment in both bull and bear markets. It should be noted that emotions play an important role in financial markets, so it is wrong to pay absolute attention to the fundamental parameters in stocks.

Market sentiment is about fear and greed, and fundamental parameters are about the performance of a business.

Some investors make a profit by considering market sentiment by finding stocks that are overvalued or stocks that are undervalued. These people use a variety of indicators to identify market sentiment and find the best stocks. In markets, indicators such as VIX and BPI and even the Moving Average are used to identify investors’ fears or greed and general market sentiment.


Market sentiment indicators


Fear index (VIX)

In global markets, this index is also known as the fear index and is determined by options prices. This index is less used in the Iranian market. Increasing VIX means the need for confidence and insurance in the markets.

If traders feel the need to hedge their assets against risk, this feeling manifests itself in the form of an increase in this index. The use of Moving Average in this index is used to determine whether it is high or low.


BPI index

The Bullish Percent Index (BPI) identifies the number of stocks that have an ascending or bullish pattern. In the bearish or neutral market, the index fluctuates around 50%, and when it is around 80% or higher, it indicates that its capital is highly optimistic about the market, in which case it is usually overbought. Also, if this index is below 20%, it indicates a negative feeling toward the market and the possibility of over-selling (Oversold) in stocks.

Traders typically use the 50-day and 200-day simple moving averages (SMAs) to identify market sentiment.When the simple 50-day moving average crosses the 200-day simple moving average upwards, it is called the Golden Intersection and indicates that the market direction has changed and the market has become bullish. Conversely, if the 50-day moving average breaks the 200-day moving average downwards, it is known as the intersection of death and is probably a sign of fear of traders and the start of a bear market in the market.


Emotional indicators versus technical indicators

While some sentiment indicators are also referred to as technical indicators, or conversely, sentiment indicators show how consumers or investors have positioned themselves, or what their current beliefs about the economy or market are. A technical index is a broad term used to describe formulas that manipulate the price or volume data (and sometimes other types of data) of an asset to provide a different perspective on what is happening in the price/volume chart.


Bottom line

In this article, we introduce three indicators of digital currency and bitcoin emotion analysis: Fear and greed index, Bull & Bear Index, and Bitcoin Sentiment Index. Bitcoin traders can use these three indicators to detect market trends. Of course, as we said before, we should not rely on these three indicators alone.

It is necessary to use the indicators and indicators of technical analysis and fundamental analysis along with emotion analysis. As a trader, using a variety of tools will help you make better decisions with more awareness.

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