Using Social Media To Perform Market Sentiment Analysis (Part 3)
We have discussed the concept and its relevance to market sentiment previously. We have also discussed technical indicators that can help with market sentiment analysis in part 2. In this part, you will learn about social indicators that can help you read market sentiment.
Market sentiment indicators
In traditional markets, traders can reasonably rely on technical analysis tools to determine market sentiment and speculate on which direction an asset might trade in the future based on past data. With crypto being a very young market compared to traditional markets and the audience mainly consisting of millennials, another field can be explored whenever a certain "new" project might lack the necessary data to perform accurate technical analysis or fundamental analysis.
As we live in an era where social media is used extensively and intensively, it can be a useful tool in finding out what people think about specific crypto projects and assets. To get a broad overview of what people think about the markets or a specific project, you might want to investigate the social media channels of a specific project. You can also consider joining their forums, telegram chats, or discord servers.
Fear and Greed Index
Emotions are a strong influential factor in cryptocurrency markets and often influence price fluctuations. The Fear and Greed index provides information about overall crypto sentiment. It is perhaps the most known indicator of market sentiment. On a scale of 0 to 100, this index takes into account five different information sources, where 0% represents an extreme amount of fear, and 100% represents an extreme amount of greed. The information sources taken into account are trading volume, social media, trends, dominance, and volatility.
Bull & Bear Index
A much more sophisticated version of market sentiment analysis is Augmento, a different kind of indicator concentrating on social media. Their AI software takes into account 93 sentiments and topics, analysing threads and conversations on Twitter, BitcoinTalk, and Reddit. A score of 0 indicates extreme bearishness, while a score of 1 indicates extreme bullishness.
While these indicators and methods can provide a good insight into the market's sentiment, it remains important to understand that this is a speculative method of analysis and should not be relied on solely when making investment or trading decisions. Ideally, multiple methods and indicators are used to get a more balanced view of the markets. Whenever using social media, always make sure to NOT trust random people, do your own research, and be aware of the risks you are taking!
Disclaimer: The opinions expressed in this article are for informational purposes only. This article does not constitute an endorsement of any of the products and services discussed or investment, financial, or trading advice. Qualified professionals should be consulted prior to making financial decisions.
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