In finance, the term sentiment (or market sentiment) refers to the highly subjective feeling about the state of a market. It is the overall emotion that traders and investors have in regards to the price action of a particular asset.
In other words, the market tends to go up when the majority of traders are bearish, and down when the overall sentiment is more bullish than what could be considered normal. As such, market sentiment may often work as a type of contrarian indicator.
The market sentiment is one of the things contrarian traders look for. If most people are bullish, they will consider selling or shorting. But, if the sentiment is too bearish, they will consider buying or opening a long position.
Recently, attempts have been made to accurately measure and quantify market sentiment by applying the results and knowledge from fields such as behavioral finance and behavioral economics.
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