Sentiment Feature: Bullish or Bearish?
Sentiment is an important but fickle feature of the financial trading system. Even before internet times, brokers knew that there was a human dynamic in the stock market, and that trading and pricing was basically social interaction. On many historical occasions, it has been the sentiment of the investing crowd that has driven prices up or down, rather than any other technical or fundamental event.
Traditionally, investor sentiment has been tough to predict. However, one of the advantages of being a social trading network is that we are able to measure this sentiment very accurately simply by collecting the data from across our social trading network. Now that’s what we call the Wisdom of the Crowds.
How to read sentiment?
If you look at the listings on your WebTrader market rates panel, the sentiment in a particular market is summed up in one column, as a percentage of buying or selling positions. It reflects what is going on right now in the eToro community. This unique little tool gives you an immediate overview of the direction in which the Wisdom of the Crowds is expecting the market to head.
However, it is up to you to incorporate this data into your trading system. The sentiment does not predict the movement of the market 1005 accurately and sometimes it can mean quite the opposite. For example, if 80% of traders were selling the NZD/USD when the price of the market skyrocketed, many traders’ trading strategies will have them holding on to their losing investments in the hope that the trend will reverse. Therefore, even though the market price is clearly on the rise, the crowd sentiment will still be bearish rather than bullish.
The sentiment feature is also included in our Mobile Trader app.
What to do with this information?
The way in which you interpret and use the sentiment information is up to you and your willingness to take on risk exposure. Depending on your trading strategies, you can act in accordance with the crowd and sell in a bear market or go against the masses and buy in a bear market.
If the sentiment feature tells you that many people are selling this means the price will likely go down and you may be looking forward to a unique buying opportunity for a stock you have been considering for a long time.
We suggest that you use this feature in juxtaposition with other market analysis tools, such as chart data and fundamental analysis.