The theory behind sentiment analysis is that price changes result from changes in disbalance between optimism and pessimism. Any financial instrument’s price fluctuates around the current asset’s fair value from extreme pessimism to extreme optimism, respectively, from peak formation low to peak formation high. So, the sentiment analysis provides a sense of possible market reversals and potential trend continuations. Collaborating with technical and fundamental analysis would be best to get the most out of it.
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I think it’s a type of psychology or the way a person thinks of something.
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The market sentiment analysis indicates what the market participants expect about the next price movement - up or down. For example, if the market sentiment is optimistic for EURUSD, the traders expect the price of the forex pair to increase. On the other hand, if the market sentiment is pessimistic for EURUSD, the traders expect the forex pair to go down. These expectations are the basis for most buy-and-sell decisions and are driven by emotions, experience, and analysis. This means that traders confirm their expectations by placing orders. When a long (buy) position is opened, optimistic market sentiment is in play; if a short (sell) position is opened means pessimistic market sentiment. Extremely short positions refer to extreme pessimism, and extremely long positions refer to extreme optimism. Usually, retail traders are extremely short on the market tops because they expect the price to reverse. Respectively, extremely long at the market bottom. You can see some examples below:
Sentiment is the viewpoint that a trader has over the market and it varies from traders to traders.
Gotta. This sentiment can impact trading decisions .