Indicators in the Crypto Market: the valuation of social sentiments
the emotional matters for rational investments
INTRODUCTION
According to Investopedia, Indicators are statistics used to measure current conditions as well as to forecast financial or economic trends.
Fundamental Analysis gauges market value through business features such as revenue and profit. Technical indicators use price & volume data to determine market trends, volatility, volume, etc. Social indicators use crowd psychology[1] as the key to analyzing the participants involved in the crypto market.
Figure 1: EgudinKa / Shutterstock
In this article, we will introduce different social sentiment indicators. As a valuable tool for crypto traders, social sentiment indicators are often combined with technical indicators to evaluate assets and identify short-term and long-term trading opportunities. With a great variety of indicators to choose from, one should understand that the one-fits-all solution does not exist. Choosing the indicators that fit one’s unique trading strategies most is a good option. In this spirit, we provide a decision tree for indicators selections.
DEFINITION
According to Investopedia, a social sentiment indicator evaluates aggregated social media data to help businesses know their performance in the eyes of consumers.
To put into the context of the cryptocurrency market, social sentiment indicators reflect timely crypto market moods and the level of popularity of search tokens. For example, the figure below shows the Social Volume and Social Dominance of Ethereum tokens from April 11, 2021, to July 11, 2021. Both of the parameters are social sentiment indicators and can reflect the popularity of Ethereum in the time interval. We can capture that the Ethereum tokens meet a social popularity peak at around May 9, 2021.
According to Santiment, Social Volume captures the total number of text that contains the search term at least once. Social Dominance compares the Social Volume of that asset to the combined social volume of all available assets.
Figure 2: Social Volume and Dominance of Ethereum from Apr 11, 2021, to July 11, 2021
SOCIAL SENTIMENT INDICATORS CATEGORY
We introduce the following social sentiment indicators sorted by indicator type (quantitative or qualitative) and function (scale or sentiment). Indicators are collected from various cryptocurrency platforms and crypto research tools with data provided.
Table 1: A Category for Social Sentiment Indicators
DATA SOURCES AND APIs:
Btcforthe.win
A Guide for choosing Social Sentiment Indicators
Figure 3: A guide for Choosing Social Sentiment Indicators
Social sentiment indicators can be quantitative (i.e. time series data) or qualitative (i.e. specific articles or news feed). To pick a social sentiment indicator that best fits you, you can first decide what kind of information is valuable to you — the popularity of a search term, the sentiment, or both. The absolute popularity gives you valuable information of the aggregated social attraction on various platforms. The relative popularity records the speed or the share of social attraction of a search term. The sentiment indicators quantify and categorize people’s moods towards a search term, for example, positive or negative, greedy or fear.
Recommended Materials:
[1] Crowd psychology notes the behaviors and thought processes of both the individual crowd members and the crowd as an entity.
Author: Jiayi Li, Summer Research Scholar at Duke Kunshan University 2021, on the Fintech project team lead by Prof. Luyao Zhang
This article is a deliverable out of the Summer Research Scholar Program
Acknowledgments:
Design: Austen Li
Associated Editor: Xinyu Tian
Assistant Editor: Lunji Zhu, Zichao Chen
Project Lead and Chief Editor: Prof. Luyao Zhang