CHAPTER 23
Sentiment Indicators and Contrary Opinion
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
- Understand the meaning of market sentiment and implications
- Apply technical analysis to sentiment data effectively
- Distinguish between the well-informed and under-informed participants
- Identify market tops and bottoms using sentiment indicators
- Gauge market sentiment using opinion polls
Market sentiment offers the practitioner additional insight into the underlying factors that drive the markets. It is the study of the actions and opinions of market participants. It focuses on the behavioral dynamics that accompany the formations of market tops and bottoms. In this chapter, we shall be discussing various sentiment indicators and how they provide an early indication of potential market turns.
23.1 ASSESSING THE EMOTION AND PSYCHOLOGY OF MARKET PARTICIPANTS
Market sentiment represents the overall view and emotions of all participants about the market environment, with particular regard for the degree of pessimism and optimism displayed by its participants through their actions and opinions.
The study of its participants' emotions, beliefs, expectations, biases, and overall psychology especially during highly or overly emotional periods in the markets and their subsequent reactions help identify consistent patterns of behavioral excess. These patterns of behavioral excess are reflected in action of the participants by the way they risk capital in the markets ...
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