I just remembered something that many people tend to overlook – market sentiment. Simply put, it’s market mood, but this thing really has a significant impact on trading outcomes.

I’ve noticed that many beginners only look at technical charts but don’t understand that market psychology is driving everything behind the scenes. When everyone is afraid, money starts flowing into safe-haven assets like gold. Conversely, when market confidence is high, people start chasing the highs. That’s how market sentiment comes into play.

Understanding market sentiment isn’t actually difficult; the key is knowing how to read it. The VIX index is a good tool; it can tell you how fearful the market is. A high number suggests the bottom might be near, while a low number indicates you should be cautious of the top. There’s also the high-low index, which looks at how many stocks are hitting new highs or lows within the past 52 weeks, reflecting the true strength or weakness of the market. Another one is the bullish percentage index, which exceeds 80% when the market is overheated, and drops below 20% when selling pressure is too heavy.

The 2021 cryptocurrency boom is a perfect example. Back then, discussions about coins flooded the internet, and everyone thought it was the future of investment. FOMO drove prices sky-high. But once negative news started to surface, market sentiment instantly reversed, and prices plummeted. That’s the power of market sentiment.

I think the most practical approach is to combine news and social media to gauge market sentiment. See what people are talking about—whether they’re optimistic or bearish—this can help you sense market turns in advance. But here’s an important point – you can’t rely solely on sentiment analysis; it must be combined with technical analysis. Chasing risk sentiment alone can easily get you trapped.

So if you want to survive longer in the market, understanding market sentiment is a must. Once you grasp the market psychology, you can better predict trends and find suitable trading opportunities. It doesn’t guarantee profits, but at least it helps you avoid many pitfalls.