Sentiment

11 oct 2023

Frequently, we encounter situations where individuals do not express their own market opinions but instead relay others' viewpoints. This is typically evident in the way they present their analytical arguments. Such instances are manifestations of collective sentiment, providing subtle hints about potential future price movements, even if within the context of manipulation. This is why the skill of working with market sentiment is essential for any trader or investor.

Sentiment analysis in financial markets holds significance for several reasons.

Understanding socially active individual market participants: Every trader or investor makes decisions based on their personal beliefs, experiences, and emotional state. Analyzing the sentiments of influential individuals allows us to comprehend the factors influencing their decisions and anticipate their behavior in the market.

For instance, when influencers exhibit fear or overconfidence, this can influence public opinion, which will eventually impact the market in terms of open interest and liquidity flow.
Understanding collective influence: The collective emotional state of the market is reflected in the crowd's reaction to specific price movements. The sentiment of the crowd creates a bias about market participation. When the crowd is highly enthusiastic, and discussions are bustling, open interest tends to increase. Conversely, when apathy prevails among a large audience, open interest stagnates, and prices may interact with prior key levels. When widespread sentiment leans towards confidence in a particular price movement scenario, this can result in the emergence of a significant layer of liquidity, making it a focal point for potential manipulation. Understanding collective sentiment aids in assessing potential risks and opportunities.

Personal bias: Working with sentiment is closely tied to self-analysis since every market participant is influenced by market sentiment, sometimes even externally imposed biases, which can distort one's perception of price action. Recognizing personal biases and being open to self-critique is vital to making more rational and well-justified decisions.
Social volume measures the attention a specific asset receives in terms of published posts, threads, and articles.

Trending words are indicators of hype and the frequency of specific words mentioned in discussions. These terms reflect the sentiment of a particular group of people, mainly the crowd. A discrepancy between the influencers' opinions and prices often leads to manipulation. Additionally, the crowd tends to support an asset's growth, so the trending words curve typically mirrors price movements closely.

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✅Disclaimer: Please be aware of the risks involved in trading. This idea was made for educational purposes only not for financial Investment Purposes.

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