What is Market Sentiment

In technical analysis, sentiment comes in only two flavours — bullish (the price is going up) or bearish (the price is going down). At any moment in time, a bullish crowd can take a price upward, or a bearish crowd can take it downward. When the balance of sentiment shifts from bullish to bearish (or vice versa), a pivot point emerges. A pivot point is the point (or a region) where an up move ends and a down move begins (or the other way around). At the pivot point, the crowd itself realizes that it has gone to an extreme, and it reacts by heading in the opposite direction. As far back as the early 1900s, traders observed that if they were patient and waited for a pivot point to develop, they could trade at the right psychological time — just as the crowd is beginning a new move. When the crowd is reaching an emotional extreme, the crowd is usually moving in the wrong direction. A reversal point is impending. You should do the opposite of what the crowd is doing, or at least get ready to.