Sentiment Trading

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.

Example

A trader might buy stocks when they notice widespread optimism in the market, anticipating that the bullish sentiment will continue driving prices higher.