Crypto Sentiment Analysis: The Key To Stay Ahead Of The Market
Top analyst Mike Jenkins from Coin Bureau shares an important key analysis, except technical and fundamental analysis, to stay ahead of the crypto market and be able to predict the next pump or dump.
Sentiment Analysis Overview
Sentiment analysis has been around for a long time but it took off in the early 2000s as social media platforms started to emerge. According to the trader, it was first used by online shopping giants like Amazon and politicians like Barack Obama to gauge public opinion without having to read every single comment. As of about 2010, sentiment is used for trading:
“Sentiment analysis is the process of detecting positive or negative sentiment in text. It’s often used by businesses to detect sentiment in social data, gauge brand reputation, and understand customers,”
In trading, the analyst believes if traders can detect the emotions of investors in advance with sentiment analysis on say, social media platforms like Twitter and Reddit, they could theoretically predict the price action of any cryptocurrency.
Sentiment Analysis Metrics
The fear and greed index is a popular sentiment analysis metric in crypto market. It is is modeled after the fear and greed index for the stock market which was created by CNN’s financial division. Both are updated on a daily basis:
“There are two simple assumptions: Extreme fear can be a sign that investors are too worried. That could be a buying opportunity. When Investors are getting too greedy, that means the market is due for a correction.”
Bitcoin Bull And Bear Index is another metric to gauge the sentiment of Bitcoin traders. The bull and bear index focuses exclusively on bitcoin sentiment on social media platforms, specifically Bitcointalk, Reddit, and Twitter. More importantly, the bull and bear index is updated every hour which makes it more suitable for active day trading.
Altcoin Sentiment Analysis Trading
Sentiment analysis’ forecasting features are more powerful for mid and small cap altcoins. This is because their price discovery is more organic as they are not the focus of market manipulation.
According to the crypto KOL, even though many mid and small cap altcoins are also manipulated from time to time, usually that manipulation is coordinated through social media.
“Because most if not all this information is out in the open, sentiment analysis indicators can often let you get in early and sell right as that pump is peaking. Even so, be weary of how that sentiment data is being collected.”
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