The aggregate attitude of traders and investors toward a financial asset or market is known as market sentiment. All financial markets, including cryptocurrencies, use the same notion. The ability of market sentiment to impact market cycles is undeniable.
However, high market sentiment does not always imply favorable market conditions. The strong bullish sentiment (we’re going to the moon!) can sometimes precede a market decline or even a bear market.
Traders can use these sentiments to forecast potentially profitable trends in addition to learning about the market demand. The fundamentals of a project are not always taken into account by market sentiment, but they may be linked at times.
Consider the case of Dogecoin. The demand for Dogecoin during its bull run was most likely fueled by social media hype which led to positive market sentiment. Many traders and investors acquired Dogecoin because of the current market emotion, not because of the project’s tokenomics or ambitions. Even a single tweet from a public figure like Elon Musk can swing market sentiment in either direction.
Many trading systems include market sentiment analysis as a key component. Making decisions based on a combination of all available information is usually a smart idea, just like technical or fundamental analysis.
Market sentiment analysis, for example, can assist you in determining whether FOMO is justified or merely a result of herd mentality. Using a combination of technical and fundamental analysis as well as market sentiment surveys, you can:
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