Put simply, market sentiment is the collective attitude of market participants toward the market. The actions that those participants take based on their attitude and sentiment influence the market‘s direction. It’s important to understand what actually causes market trends and movements.
So, let’s look at market sentiment, how it affects the crypto market, and how it influences the decisions investors make.
Market sentiment
Market sentiment is the general attitude of market participants toward the market. Supply and demand, and external factors like natural disasters or governmental policies affect market sentiment. Note that market sentiment does not always rely on fundamentals. Psychological and emotional factors like fear, greed, FOMO and FUD can hugely influence the market. FOMO (fear of missing out) and FUD (fear, uncertainty and doubt) have a strong influence on decision making and, therefore, on the market as a whole.
Bullish/ Bearish Market sentiment is either bullish or bearish, depending on the level of optimism or pessimism among participants. If most participants are optimistic, more people will buy, creating an upward trend or bull market– picture a bull swinging its horns upwards, driving prices higher.
On the other hand, if the collective attitude of most market participants is that prices will fall, assets depreciate, and people start selling to reduce losses. Imagine a bear swiping down with paws, driving prices lower. No market ever goes straight up or down. There will always be periods of sideways action, downside and upside movements in both bull and bear markets.
How can an investor utilise knowledge and understanding of market sentiment to their advantage?
Technical Analysis Technical analysts and traders use various indicators influenced by market sentiment in order to profit from fluctuations of assets.
Disclaimer: NOT FINANCIAL NOR INVESTMENT ADVICE. Only you are responsible for any capital-related decisions you make and only you are accountable for the results.