Market Sentiment Guide

Market Meditations | July 12, 2021

? Bullish, Bearish, Crabbish… What Is Market Sentiment?

1️⃣ Defining Market Sentiment

Put simply, Market Sentiment considers investors and traders’ thoughts, feelings and moods regarding an asset. Market Sentiment does not always reflect or indicate the fair value of an asset. It can however impact the price. Market Sentiment Analysis then tries to predict price movement based on market participants’ overall attitudes. This tends to be used in conjunction with other tools such as Technical Analysis and Fundamental Analysis.

? For more on Technical Analysis check out our free beginner’s course and for more on Fundamental Analysis check out our letter on On Chain Analytics.

2️⃣ Why & How It Impacts The Crypto Markets 

In crypto markets, price is impacted by supply and demand. This is the mechanism through which Market Sentiment can also affect price. Dogecoin is a good example. A lot of this asset’s demand in the bull market came from the surrounding hype or sentiment. A single tweet from Elon Musk would create strong positive sentiment, increased demand and therefore appreciation in the price of the asset.

3️⃣ How To Track & Monitor Market Sentiment 

To understand Market Sentiment, you need to collect market views, ideas and opinions. You can either investigate this yourself or use some premade tools. 

  • ? Monitor Social Channels. For a project, token or asset you may want to consider investigating their social media platforms (Medium, Twitter etc.) In crypto, it is usually possible to join Telegrams, Discords or official servers. Here, you can interact with the community and sometimes directly with the team. BEWARE: there are many scammers in these groups.
  • ?Stay Up-to-date. Have a resource for the latest industry news. This newsletter is an example along with CoinDesk and CoinTelegraph.
  • Set Alerts or Track Whale Transactions. Accounts like track the decisions of big crypto investors. These decisions can often have an impact on market sentiment.
  • ? Check Market Sentiment Indicators. Sources like CoinMarketCap analyze a range of different sources and provide easy summaries of market sentiment.
  • Use Google TrendsThis measures the hype surrounding a cryptocurrency. For example, a large search volume for “How to Buy Crypto”, could suggest the market sentiment is positive.
  • Crypto Fear & Greed Index. The index shows Bitcoin market fear or greed on a scale of 0 to 100 by analyzing five different information sources: volatility, market volume, social media, dominance, and trends.
    • Extreme fear can be a sign that investors are too worried. That could be a buying opportunity.
    • When Investors are getting too greedy, that means the market is due for a correction.
  • The Bull & Bear Index. The graphs show how bullish/bearish conversations about Bitcoin (BTC) are on social media. 0 is extreme bearish, 1 extreme bullish. The underlying data is collected from Twitter, Reddit and Bitcointalk and updates every hour.

4️⃣ Putting It Altogether 

There are plenty of ways to conduct Market Sentiment Analysis. The list we have shared is not exhaustive. This type of analysis should not be used in isolation but rather in conjunction with other practises such as technical analysis and risk management. By way of example, after you’ve established a good entry point based on your Fibonacci Retracement levels and placed a sensible Stop Loss order, you might use the Extreme Fear reading for some final conviction before you to decide to open a new long position.