The Importance of Understanding Market Sentiment Influence on Stocks
•By Nadeyya Rahmat
Artikel ini juga tersedia dalam Bahasa Melayu
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Every trader or investor needs to understand that the stock market is closely tied to sentiment. It can be either negative or positive sentiment, and the market's reaction will move in tandem with the fall or rise of stock prices.
Market sentiment is the overall attitude of investors toward a particular security or financial market. Market sentiment is the feeling or tone of a market, or its crowd psychology, as revealed through the activity and price movement of the securities traded in that market. – Definition of Market Sentiment via Investopedia
In summary, market sentiment refers to the overall state of the market that is shaped by a key factor which will influence the upward and downward movement of the market over a certain period. Related reading: What Is Market Sentiment?
If the main sentiment factor is positive, it will stimulate stock movement in an upward trend. Conversely, if market sentiment is negative, losing counters will outnumber gaining counters.
For traders, early in the morning before the market opens, they stay alert to the Dow Jones closing index. Usually, if this major index plummets, regional markets will also be affected. As an example for 2018, the worst single-day drop in the Dow Jones was on 5 February with a fall of 1,175 points, while on 10 October, the Dow Jones once again fell 822 points. The KLCI on the following day dropped 40 and 38 points respectively after the Dow's decline.
For your future reference, we have listed several major international indices that can be used to gauge current market sentiment.
| Country | Stock Exchange | Index | Local Trading Hours |
|
| United States | New York Stock Exchange | Dow Jones Industrial Average (Dow) | 09:30-16:00 | |
| United Kingdom | London Stock Exchange | FTSE 100 | 08:00-16:30 | |
| Germany | Frankfurt Stock Exchange | DAX | 09:00-17:30 | |
| Japan | Tokyo Stock Exchange | Nikkei 225 | 09:00-15:00 | |
| Hong Kong | Hong Kong Stock Exchange | Hang Seng | 09:30-16:00 |
Besides that, commodity prices such as crude oil and Brent oil also play an important role for stocks in the oil & gas industry sector. Also read: Rise in Crude Oil Prices.
In addition, for those who have an Investing.com account, to make your stock research easier, you can download the Investing.com application and use the free tools they provide. As shown in the example below, through the portfolio tab, I have entered all the relevant sentiment information.
All of these indicators can be used to give you a picture of current market sentiment. The best approach is to combine this sentiment analysis with technical and fundamental analysis to get the best trading set-up. Not sure how to carry out fundamental analysis? Further reading here.
At Mahersaham, we provide learning materials covering basic and advanced stock topics suitable for all levels of the public, whether you are a beginner or have been in the stock market for a long time. Register for Mahersaham Premium now!
Market sentiment is the overall attitude of investors and traders towards the stock market at any given time. It reflects the collective mood — whether optimistic (bullish) or pessimistic (bearish) — and directly influences stock price movements.
The Dow Jones Industrial Average is a major global index. When it experiences significant drops, regional markets including Bursa Malaysia's KLCI tend to follow with declines the next trading day, as global investor confidence weakens.
You can use platforms like Investing.com to monitor major international indices, commodity prices, and other key indicators that reflect market sentiment. The portfolio feature allows you to consolidate all sentiment data in one view.
Market sentiment helps traders anticipate the overall market direction. By understanding whether sentiment is bullish or bearish, traders can make more informed decisions about when to enter or exit positions, and combine it with technical and fundamental analysis for a more complete trading strategy.
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