Understanding Market Sentiment

Market sentiment is the overall attitude of investors toward a particular asset or, generally, the financial market. Essentially, it’s the crowd psychology of participants in the market which can influence market trends and cycles. Market sentiment does not necessarily consider the fundamental of a project and can be driven by hype or FUD.

How to do market sentiment analysis?

One should collect data and information about the participant's views, opinions, and ideas about a project or the market to understand the market sentiment. These are some sources and indicators one might consider when doing sentiment analysis.

• Social media can provide vital information about what the community around a specific project is feeling. This will be visible mainly through the community's engagement and feedback, as seen in the comments, the number of likes, shares, retweets, etc. Twitter is the most popular social media platform for cryptocurrency communities. Additionally, there are special software tools specifically designed to synthesize social media channels and provide sentiment analysis, such as CoinMarketCap.

• News sources can help to stay updated by providing information about specific projects or the market in general. Kalaam Crypto news (Brought to you by CoinMENA), Binance news, Bitcoin Magazine, CoinDesk, and Coin telegraph are some of the cryptocurrency-specific news sources that post valuable and authentic news updates regularly.

• Blockchain technology makes all transactions public therefore enabling users to conduct on-chain analysis. With on-chain analysis, users can track whale movement to gain a general sense of how the market moves are feeling. Whale alert bots and pages are available mainly on Twitter and telegram.

• The Crypto Fear and Greed index is a user-friendly and simple way of understanding market sentiment.

• As the most popular search engine, Google search can help track market sentiment by looking at search trends. For example, increased search volume for questions around “how to buy cryptocurrency” or “which is the best crypto exchange” could indicate increased positive sentiment around the market or an imminent euphoric rush.

Importance of Market sentiment analysis

Market sentiment can influence market trends and cycles; thus, it is an important part of trading strategies and analysis.

For example, Dogecoin is a cryptocurrency with poor tokenomics, and the project generally has unclear goals, yet it has one of the largest market capitalizations in the cryptocurrency market. Its price movement is mainly driven by social media hype or sometimes something as simple as a tweet about it by Elon Musk. This essentially represents the impact and importance of considering market sentiment when investing in a financial market or cryptocurrency.

Combining market sentiment with technical and fundamental analysis can help to

• Get a better understanding of short to mid-term price action that can help identify profitable opportunities.

•  Identify fake hype or FUD around a project to avoid emotionally influenced investment decisions.