Sentiment Analysis
Reading market psychology at scale
Sentiment analysis measures the collective mood of market participants.
Sentiment indicators: 1. Fear & Greed Index: CNN/alternative.me composite metric (0=extreme fear, 100=extreme greed) 2. COT Report: Institutional positioning (covered in detail earlier) 3. Put/Call Ratio: Options sentiment (high ratio = bearish) 4. Retail positioning: Broker data showing retail long/short ratios 5. Social media sentiment: NLP analysis of Twitter/Reddit
Contrarian principle: - Extreme greed → Be cautious (potential top) - Extreme fear → Look for opportunities (potential bottom) - "Be fearful when others are greedy, greedy when others are fearful" — Buffett
Use sentiment as confluence with technical analysis, not as standalone signals.
Pro tip: Extreme Fear (below 20) + price at major weekly support = one of the best contrarian buy signals.
Common mistake: Selling just because Fear & Greed shows "greed". Better: Markets can stay greedy/fearful for extended periods. Use as confluence, not timing..
Key takeaways
- Fear & Greed Index: 0=fear, 100=greed
- Extreme readings suggest contrarian opportunities
- Retail traders are often positioned wrong at extremes
- Use sentiment as confluence, not standalone
Quiz
- Extreme Fear on the Fear & Greed Index suggests: Answer: Potential buying opportunity. Extreme fear often marks bottoms — contrarian buying opportunity.
Educational content, not financial advice.