#MarketSentimentWatch
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Market sentiment and positioning
Reading time: 6 minute(s)
Markets are often driven by emotion, rather than economics. Find out more with this lesson.
In this lesson you will learn:
Why market sentiment could play an important role in trading
How to measure the sentiment
What could we know from the positioning data
Although prices of assets depend mainly on fundamental and technical factors, they can be also influenced by market sentiment. In fact, markets are largely driven by emotion, and sentiment can be reflected in prices.
For example, the market reacted with nervousness to a Donald Trump win in the US presidential election of 2016. While the majority of polls predicted a victory for Hillary Clinton, the markets entered a state of shock when Trump emerged as the winner. A nervous reaction led to a sell-off of the US dollar and US indices, but as soon as the nerves were calmed, traders started to buy the greenback and stocks. Why? Because Trump’s policy was seen as a positive for the US economy. However, the first reaction was determined mainly by the sentiment, not by fundamental factors. That is why it is important to take sentiment into consideration while trading and to know which indicators could be helpful in this area.
What exactly is market sentiment?
The sentiment could be described as bearish, neutral or bullish. When the bearish mood prevails, stocks are going down. The same applies to the currency - bearish sentiment would weigh on it. On the other hand, a bullish view is a positive one that supports stocks and currencies.