Market sentiment describes the overall mood, expectations, and emotional state of market participants at a given time. It can be bullish (optimistic), bearish (pessimistic), neutral, or extreme (euphoric/panic-driven). Sentiment influences supply and demand and can amplify or even trigger price movements that go beyond fundamental justification. Various indicators are used to measure sentiment, including volatility indices such as the VIX, put/call ratios, fund flow data, surveys of market participants, or positioning data from the Commitment of Traders (COT) report. In trading, sentiment can be used as a contrarian indicator: extreme optimism may signal overheating, while extreme fear may indicate potential buying opportunities. Sentiment adds a psychological dimension to technical and fundamental analysis.
