What is investor sentiment?
The general mood among investors regarding a particular market or asset. You can gauge investor sentiment by reviewing the trading activity and direction of prices within a particular market. For example, rising prices would point to positive investor sentiment.
Key takeaways
Investor sentiment refers to the general mood among investors regarding a particular market or asset, which can be gauged by reviewing trading activity and price direction, with rising prices indicating positive sentiment.
Terms like 'bullish' and 'bearish' describe investor sentiment, where bullish means investors expect prices to keep rising, while bearish indicates predictions of price falls in a particular market.
Investor sentiment isn't an exact science because it's driven not only by economic reports and global events but also by emotion, as demonstrated by the annual 'Santa rally' when stock markets rise around Christmas for no real reason.
It's important to remember that investor sentiment doesn't always provide a true indicator of future price movements, and contrarian investors actually choose to trade in the opposite direction to general market sentiment.
Where have you heard about investor sentiment?
Terms like 'bull market' and 'bear market' are often used to describe investor sentiment. If prices in a particular market are expected to keep rising, investors are said to be 'bullish'. But if price falls are predicted, sentiment is 'bearish'.
What you need to know about investor sentiment.
Investor sentiment isn't an exact science. That's because along with things like economic reports and global events, it's driven by emotion. A good example of this is the annual 'Santa rally', when major stock markets generally tend to rise around Christmas time for no real reason.
It's important to remember that investor sentiment doesn't always provide a true indicator of future price movements. In fact, so-called 'contrarian' investors choose to take the opposite view and trade in the other direction to the general market.