What Is Market Sentiment?
Market sentiment is the aggregate emotional state and attitude of participants toward an asset or the overall market. It ranges from extreme fear (bearish, risk-averse) to extreme greed (bullish, risk-seeking). Sentiment drives short-to-medium-term price action and often overshoots in both directions.
How Sentiment Is Measured
Key sentiment indicators include:
- Fear & Greed Index — Composite daily score from 0 to 100
- Funding rates — Positive = bullish positioning, negative = bearish
- Social volume — Mentions, engagement, and tone on social media
- Options skew — Put/call ratios reveal institutional hedging activity
- Exchange flows — Inflows suggest selling intent, outflows suggest accumulation
Why It Matters for Traders
Sentiment is most valuable at extremes. When everyone is euphoric, the market is near a top. When panic dominates, the market is near a bottom. Contrarian traders systematically fade extreme sentiment, and combining multiple sentiment metrics (funding + social + on-chain) produces the most reliable signals.