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Sentiment trading involves making trading decisions based on the overall mood or psychology of the market rather than relying solely on financial metrics or technical analysis. Traders gauge market sentiment through news, social media, and investor behavior to predict price movements, often responding to trends of fear or optimism. Positive market sentiment can drive prices up, while negative sentiment can cause sharp declines.
A trader might buy stocks when they notice widespread optimism in the market, anticipating that the bullish sentiment will continue driving prices higher.
• Involves trading based on market mood or investor psychology.
• Can lead to significant gains during strong market trends.
• Often influenced by news, social media, and investor sentiment.
It helps traders predict price movements based on the prevailing mood.
Tools like sentiment indexes, news analysis, and social media monitoring gauge market mood.
It adds a psychological perspective, helping traders anticipate market reactions that technical or fundamental analysis might miss.
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