Market sentiment (Sentiment) is the key to making profits from the market

Sentiment is the collective feelings and decision-making of market participants, reflecting whether investors are hopeful or worried about price movements during that period. When investors are fearful of the market, capital tends to flow out of stocks and into safe assets such as gold. This is a clear expression of market emotional conditions that directly impact asset prices.

Did you know that understanding sentiment is about grasping the psychology of successful market players? This is because experienced traders study market emotion changes before making buy or sell decisions.

The True Meaning of Market Sentiment That Traders Need to Know

When talking about sentiment, it refers to factors that cannot be measured solely by numbers but have a real impact on market behavior. During a “bear market” (money flows out), investors become fearful, while during a “bull market” (money flows in), FOMO (Fear Of Missing Out) and increased interest often occur.

For example, when negative news about the stock market appears, investors tend to quickly withdraw their funds and hedge risks by buying gold instead, causing gold prices to rise. Conversely, positive news can lead investors to buy stocks again. This cyclical flow of capital is driven solely by changes in market sentiment.

Sentiment Analysis Tools That Traders Should Use

Understanding sentiment is half the success; the other half is choosing the right analytical tools. The author has compiled three main tools for study:

###VIX( - The Fear Index - A tool that reveals market fear levels

VIX indicates how fearful the market is. When VIX is high, it signals that traders are fleeing the market )potentially a good buy point(. When VIX is low, it may indicate excessive optimism )a point to watch(. This tool helps traders monitor appropriate entry and exit points.

)High-Low Index### - Market Breadth Indicator

This tool measures the number of stocks at their 52-week highs versus lows. When the index drops below 30, it suggests many stocks are near their lows, which could be a sign of an oversold market (oversold). Conversely, when the index rises above 70, it indicates market strength. This tool is often applied to indices like S&P 500 or Nasdaq 100.

###Bullish Percent Index( (BPI) - The Uptrend Percentage Indicator

BPI shows what percentage of stocks are in an uptrend. When BPI is above 80%, confidence is high but may be nearing an overbought point. When BPI drops below 20%, it may indicate overselling and could be a potential buying opportunity.

Following News - Another Dimension of Sentiment Analysis

Besides technical tools, tracking news through various online platforms can help better understand market sentiment. For example, in 2021, when cryptocurrencies gained maximum attention, positive news fueled rapid FOMO, leading investors to flood into the market. But when negative news appeared, the cryptocurrency market plunged sharply. This clearly shows that sentiment is a psychological factor driving prices.

Why Market Sentiment Is Important for Traders

Engaging with sentiment means understanding the psychology of the market. Once understood, traders can better predict trends than average investors, whether anticipating bullish or bearish phases, and find suitable moments to profit.

However, remember that sentiment is just one factor. Technical analysis and proper risk management are equally important.

Summary - Why Understanding Sentiment Matters

Market sentiment is the herd psychology of investing. When news breaks, traders respond quickly, causing capital flows to shift. Traders who understand sentiment can detect the market’s current direction and adjust their strategies accordingly. Therefore, to enhance your investment effectiveness, continuously study and monitor market sentiment.