What does crypto market sentiment mean? How to conduct analysis of market sentiment?
Market sentiment is the general prevailing attitude of investors about a financial market when predicting price movements—sometimes referred to as the crowd psychology of the tone of the market. Broadly speaking, market sentiment tracks the attitude in the market involving hype and fear to come up with either a bullish or bearish price fundamental analysis. However, an important thing to note is that market sentiment is inherently impossible to attach to an asset's fundamental value. Mainly because market sentiment reflects the feelings and emotions of the market, whereas fundamentals are used to gauge the performance of an asset. Nonetheless, crowd psychology is a handy tool when analyzing a digital asset's short and medium-term potential.
Elements of Crypto Market Sentiment
Some investors include crypto market sentiment into the trading toolkit to effectively identify overvalued and undervalued assets. Combined with various technical and fundamental analyses, sentiment helps determine the best assets one can trade. Ideally, market attitudes have the power to influence the performance of an asset in the market. Traders need to know sometimes a favorable market sentiment is not an indication of a price uptrend. There are times strong positive market sentiments will prevail before a downward correction.
A good example is the meme coin phenomenon. Elon Musk hyped Dogecoin through tweets and resulted in an exciting positive social media sentiment. Unfortunately, a lot of traders invested in Dogecoin and forgot to gauge the coin's inherent value. Unfortunately, the bull run associated with the social media hype was short-lived, and the coin crashed a few weeks later.
Traders and investors need to carefully analyze the negative and positive side of any crypto market sentiment. By doing so, they can easily identify potential positions and act wisely. Furthermore, careful analysis prepares them for any direction in market movement.
Market participants who mostly use crypto market sentiment are day traders, contrarian investors, and technical analysts. Day traders and technical analysts because the method is frictionless when identifying short-term price movements. A contrarian investor is a person who trades in the opposite direction of the market's prevailing conditions. So, for example, everybody in the market could be selling while the contrarian investor is buying.
The Importance of Crypto Market Sentiment
Traders need to diversify their trading toolbox and include a blend of all essential market analysis tools. Market sentiment can help investors investigate FOMO and establish whether the underlying market condition is justified or only a crowd mentality. A combination of market fundamentals, technicals, and sentiments will give more control over your emotions when opening positions, provide you with a better idea of both short and medium-term price movements, and finally enable you to identify profitable trading opportunities.
How to Conduct Crypto Market Sentiment Analysis?
There are five things you need when analyzing market sentiment, the opinions, ideas, views of different market participants that are backed by various technical and fundamental indicators. It is advisable to rely on other indicators when conducting market sentiment analysis. Other sources could be your technical analysis knowledge, experience, and your inward ability to make informed decisions.
The first thing to do is explore where to find relevant opinions, views, and ideas of market participants. These could be on forums, community channels, and social media pages where the associated asset participants hang out. Community channels are mostly hosted on Telegram or discord. Important social media discussions about various projects can be found on Twitter, Reddit, and Facebook. Twitter and Reddit are the most common. A subreddit like the popular Crypto Moon Shots discusses low market cap tokens on their way to the moon. Twitter profiles of remarkable analysts and Twitter hashtags of the big coins can help evaluate the overall market sentiment.
Meanwhile, always remain vigilant on such Discord and Telegram channels due to high numbers of scammers across those groups. Finally, back up your decisions and analysis with research to avoid taking careless risks.
Take the following steps to monitor social media channels and track essential market sentiment:
Take advantage of on-chain analysis tools such as Santiment or Bittsanalytics to track down social media metrics such as mentions.
Remain updated with the latest information about the industry by checking out media publications in the crypto space. These could be authoritative sources such as Bitcoin Magazine or Cointelegraph.
Use crypto listening tools on Telegram or Twitter such as Lunar Crash to get notified about large transactions. Set whale alerts on these tools and regularly take advantage of the impact of large transactions on price movements.
Use CoinMarketCap to track down market sentiment, market capitalization, and pricing signals. In addition, CoinMarketCap provides a summarized analysis of the cryptocurrency market reflective of different authority sources.
Use Google Trends metrics to measure search volume and hype around a given digital asset. Keywords such as "How to Buy Bitcoin' are a good bullish market sentiment on Google Trends.
Like all cryptocurrency trading activities, the use of market sentiment demands learning, practice, and experience. You won't get it all right at first. However, if you utilize the proper guidelines, you will understand the importance of crypto market sentiments. You are going to make informed and well-researched trading decisions. Remember that you will incur a certain amount of risk for all positions you open in the market, regardless of whether they are short or medium-term. Conduct your due diligence, blend your analysis with other indicators, and you will exploit the full advantages of crypto market sentiments.
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