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This Element is an excerpt from Technical Analysis Plain and Simple: Charting the Markets in Your Language (9780137042012), by Michael N. Kahn, CMT. Available in print and digital formats.
Understanding, measuring, and using investor sentiment to predict market trends--and make more money.
The least-understood area of analysis is sentiment analysis. This covers such areas as degree of speculation, public opinion, and consensus. It is measured by relative activities in speculative instruments, such as options and polls of bullish opinions. Both rely on the “burning match” theory, in which the flame is passed from investor to investor until nobody is left to take it....