Sentiment Trading

Sentiments can often drive the direction of the markets. Traders can gauge the sentiment expressed in news blogs, tweets, and macroeconomic reports. Based on this information they take positions in the market. These positions can be momentum based i.e. going with the market sentiment or these can even be contrarian i.e. opposite to the market sentiment.

 

There are various sentiment indicators that traders can use to trade. These indicators are based on market data like security price, traded volume, open interest etc. A few examples of such indicators are Put/Call ratio, Volatility index (VIX), Arm index or Short term trading index (TRIN), Short interest ratio etc.