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Posted 12th December 2019

Tapping into the American Psyche Using Market Sentiment

Most commonly used in the trading world, market sentiment refers to the overall attitude of investors towards a particular market. Now, Apple’s Steve Jobs famously said he didn’t pay attention to market research and, instead, aimed to give customers something they didn’t know they wanted. However, for the average US business, reacting to market sentiment can often be a winning strategy.

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Tapping into the American Psyche Using Market Sentiment
market sentiment

Tapping into the American Psyche Using Market Sentiment

The old adage in business is that you’ll succeed if you deliver something the market wants. Now, Apple’s Steve Jobs famously said he didn’t pay attention to market research and, instead, aimed to give customers something they didn’t know they wanted. However, for the average US business, reacting to market sentiment can often be a winning strategy. Of course, there’s collecting market data but then there’s knowing what to do with it.

For entrepreneurs and business owners, this is where the concept of market sentiment becomes useful. Most commonly used in the trading world, market sentiment refers to the overall attitude of investors towards a particular market. If we take online forex trading as an example, the main goal is to predict how a currency’s value will shift in relation to another. Market sentiment in this instance will focus on whether the majority of investors believe a currency’s value is going to rise (bullish) or fall (bearish).

Using the Psychology of Crowds to Invest

Put simply, market sentiment is a picture of how the average investor views a product. In other words, it’s a form of crowd psychology. However, what’s important to understand is that it’s not a one-way street. As much as market sentiment can inform, it can also influence. A great example of this in effect is the Bitcoin boom of 2017. As price markers and innovations persuaded investors to buy Bitcoin, market sentiment shifted towards a bullish tone. That, in turn, pushed up the asset’s price.

Once the mainstream media outlets focused on the surge, it created a snowball effect. The bullish market sentiment encouraged more people to invest which, in turn, perpetuated the positive momentum. For businesses, this is an important dynamic to understand. By tapping into market sentiment regarding a particular product, fashion or trend, you have the ability to not only ride a positive wave but make that wave even bigger. If that’s the case, the question then becomes: how do you analyse market sentiment?

crowd

Knowing about the power of crowd psychology is great but how can you interpret the data you find? Unlike trading markets where market sentiment is fairly easy to establish i.e. the price of an asset is either increasing or decreasing, consumer data can be less clear. Indeed, analysing social media comments about your company or the industry within which you operate is tricky. Is someone being positive or negative? Is the general consensus in favour of the latest trend? What are the common requests consumers have?

Machines Make Market Sentiment to the Fore

These are important questions to answer as they’ll give you an idea of what the market sentiment is in your area. However, it’s almost impossible for one person to answer them accurately. Fortunately, this is where artificial intelligence (AI) can help. These programs have the power to assign scores to certain keywords and determine the sentiments of consumers. For example, you may want to target American adults aged 21-40 who have an interest in technology. Using AI, you can assess the social media comments made by this demographic and determine their interests and desires.

The logic follows that an insight into market sentiment would allow you to focus on products and trends that are most likely to be a success. If we go back to our Bitcoin example, you’ll note that prices eventually took a tumble. Market sentiment is never static and things can change at any time. Therefore, as a business owner, it’s important to not only identify the latest trends but continually monitor them. If you can do that, you stand a much better chance of getting ahead of the game and staying there.

Categories: Innovation, Strategy


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