MARKET SENTIMENT

Market sentiment is one of the most difficult subjects to gauge, yet clearly an important one.

Market sentiment can be an important indicator in determining a trading stance. Not all traders can be right all the time, for each trade that transpires, someone sells and someone buys.

To be able to understand what sentiment is telling you, you need to make some basic assumptions regarding the markets.

One basic assumption would be that for the most part, for a significant amount of trades that occur there is a reasonable balance in supply and demand.

Wonderful opportunities await the nimble and cognizant trader in such situations. You will often hear that “the market reacted this or that way to news”, however in reality, price moved due to a mass decision. Crowd psychology suggests that most people are more comfortable doing what the crowd does. This inherent ‘strength in numbers’ mindset prevails, regardless of whether it is indeed wise decision.