How to Measure Sentiment on a Stock?


Businesses that are willing to trade and invest successfully need to understand what market sentiment is, reflecting the collective mood, emotions, and perceptions of the market participants. All of these factors have a great influence on asset prices and market trends, so with market sentiment analysis, investors can gain insight into potential market movements. How do I measure sentiment on a stick to become more successful in trading?

What is market sentiment? 

To be able to invest and trade successfully, it is necessary to understand the trends in the stock, which, when the short-term tendency is analysed, continue to go up. When investors use their knowledge, the decisions they make are called momentum trading. Part of the process requires the traders to sense the moment when the trend changes and starts going down. 

In long-term investment, market sentiment does not influence the decisions, but they base them on their expertise and sense to decide if a growth stock with bullish sentiment (expected to rise) or a value stock with bearish sentiment (predicted to dive down) is a better investment at the current moment.

Market sentiment is also driven by psychological factors, as bullish sentiment evokes a feeling of greed and the will to earn profits, while bearish sentiment makes people worried and afraid. The key is to analyze the trends without stereotypes but with knowledge.

How to measure market sentiment? 

There are a few indicators that are taken into consideration when market sentiment needs to be measured, and they can be checked at StockGeist.

#1 Volatility Index (VIX) 

VIX, or Volatility Index, focuses on the market expectations of future volatility. If volatility is at a high level, it means there is fear and uncertainty about some stocks, leading to bearish sentiment. If low volatility is presented, traders may expect bullishness for the next 30 days. The VIX is not the best indicator of the direction of trends, as it focuses on calls and puts in measurement. 

#2 High-Low Index (HLI)

This analysis is based on the daily highs and lows of a group of stocks or a market index. The measure shows the difference between the number of new 52-week highs and the 52-week lows when the tidal number of stocks is taken into consideration. With a positive value, an investor should expect a bullish sentiment and an increasing tendency, while a negative value marks the opposite situation when the bearish sentiment will decrease the value of stocks.

#3 Bullish Percent Index (BPI) 

A wider analysis, the Bullish Percent Index, focuses on the percentage of stocks trading above their 200-day moving average. In the case of a higher BPI, a bullish sentiment can be expected, and a bearish one with a lower BPI.

#4 Social media interests

The use of social media for market sentiment should not be surprising, as people spend most of their online time on such platforms. It is no wonder they can be indicators of interest in certain stocks, with the sentiment-rich keywords and discussions of users analyzed.

#5 Economic indicators

One of the most valuable data points is economic indicators. Are they ready-made for us? The key is just to understand them in the right way when we want to invest in the stock market. Market sentiment can be greatly influenced by GDP growth, employment data, or inflation figures. When the data is weak, fear and pessimism can be experienced, which is rather a signal not to invest. With strong data, the mood changes completely, becoming more optimistic and suitable for investment.

Market sentiment seems to be based on other traders’ emotions, fear, or optimism, which still makes investment and trading volatile. Try this platform to learn how to analyse market trends. 

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