Market sentiment describes how investors generally feel about specific security or financial market. It is the mood or tenor of a market, or the psychology of the crowd, as seen in the activity and fluctuation of the prices of the securities traded in that market. In general, rising prices represent a bullish market, whereas declining prices represent a bearish market.
Traders and chartists often see the market’s sentiment as a reliable predictor of possible short- and medium-term price fluctuations. Markets typically reverse course and begin moving in the opposite way when sentiment is too optimistic (bullish) or pessimistic (bearish).
To put it another way, the market tends to rise when most traders are bearish and fall when most traders are more bullish than is reasonable to assume. As a result, market sentiment may frequently function as a particular form of a contrarian indicator.
