Market sentiment is the general prevailing attitude of investors as to anticipated price development in a market. This attitude is the accumulation of a variety of fundamental and technical factors, including price history, economic reports, seasonal factors, and national and world events.
The thinking of investors about the trends in the market is termed as market sentiments. These sentiments do not need to represent the truth at any level. They just mark the general feeling which may be spread in the market due to a particular event or probably the presence of an undesired factor.
Market sentiment is usually governed by simple trends, but it should not be taken for granted. Rising prices of most securities would indicate that the market is feeling positive which is termed as the bullish trend. On the other hand, lowering prices will mean that the market has negative feelings and depict a bearish market.
Market sentiment is often termed as the sentiment of the investors. It cannot be guaranteed to be based on sound financial facts and figures. Market sentiment is often governed by rumors as well depends upon the performance of some market giants, and industry leaders. Investor sentiment is a factor that depends on different variables such as current economic reports, political events, and the global situation about certain businesses.
Importance of Market Sentiment
Market sentiment is very important, especially for small traders and brokers. Market analysts are also concerned about the current market sentiment because it directly affects the buying and selling behavior of investors. Analysts usually include the market sentiment in their analysis, and also attempt to quantify it in terms of defining the market trends, and results that may appear out of a particular market commodity such as a bond or company shares.
Most short term investors are entirely dependent on market sentiment. They usually draw out their investments quickly, and are fragile to a change in the sentiments. The market sentiment is also important for investors who generally look to do opposite to the market trend. These investors work on the belief that if everyone is going one way, then some profits are bound to be made by entirely following the opposite trend.
Monitoring the Sentiment
It is not easy to monitor the market sentiment with complete accuracy because it often depends on the feelings of investors, and their attitudes which may change any time. Most market shares move according to the market segments, and therefore it becomes important to measure the sentiment in a technical manner. A common method is to compare the number of increasing stocks against the declining stocks, as well as, comparing the number of securities that are being traded in the market on a daily basis.
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