Market Sentiment

In simple terms

Market sentiment is the overall mood of the people buying and selling — fearful, optimistic, or somewhere in between. It is not a fact about an asset, it is a description of how the crowd currently feels about it.

Definition

Market sentiment is the collective attitude of market participants toward an asset or market at a point in time, inferred indirectly from positioning, flows, and survey data rather than observed directly.

In depth

Because mood cannot be measured directly, sentiment is estimated from proxies: derivatives positioning such as perpetual funding rates, open interest, and options put-call ratios; flow data such as exchange inflows and outflows; social and search volume; and composite indexes that blend several of these into a single fear-to-greed score. These proxies frequently disagree — stated sentiment in surveys can be optimistic while positioning data shows participants reducing exposure — so a sentiment reading is a summary of behavior, not a measurement of a single quantity. Sentiment is generally treated as coincident or contrarian rather than predictive: it describes conditions that already exist, and extreme readings in either direction historically cluster near periods of high volatility without reliably indicating what happens next. Sentiment data is also easy to distort, since social-volume metrics can be inflated by automated accounts and coordinated promotion.

Related terms

• FOMO
• FUD
• Bull Market
• Bear Market
• Volatility
• Capitulation