Crypto Currencies markets attract heard of new traders daily, some with no previous trading in other markets. This causes vulnerability for the new people as they usually fall victim to sheep mentality. Following what the heard is doing. Which isn’t a problem in all cases but can cause massive losses if you don’t understand why the market is going in a certain direction. It is important that so that you understand when the market is risk on and risk off so you can profit from these situations. This is why you perform sentiment analysis.
Sentiment Analysis is a way to gauge the mood of the market. When the market is rising in prices we say that it is bullish and when prices are falling we say it is bearish. But what causes the mood of the market to change?
The crypto currency market is heavily news driven, when sudden news come out of the news which are perceived as bad or good, the market reacts, this is what creates its volatility (sudden, large price swings). Sentiment analysis is used heavily when you day trade crypto currencies.
So what are some examples of news that can drive the market?
- Rumour on government crack-down and regulations
- News of adoption by the banks or the regular financial sector.
- Social Media Tweets from respected crypto analyst and thought leaders
- Official news regarding a particular crypto-currencies development, usually from the development team.
Some common terms you might hear:
FUD – Fear, Uncertainty, and Doubt. Commonly used to describe news released which instills fear into people about a certain crypto currency. Commonly used to describe negative news coming out of the western mainstream media outlets, government regulators and other who may benefit from creating a risk on crypto market.
SHILL – A term used to describe a person or a group of people who instills confidence in others to buy a crypto-currency. You will see examples of these people on twitter, YouTube and other social media outlets.
In the following articles, we will look into some of the tools we can use to perform our own sentiment analysis.