"Buy when there's blood in the streets."
Understand the terminology behind market psychology and technical analysis.
Understanding financial terminology is the foundation of informed investing. Whether you are a seasoned trader or just starting to explore the markets, familiarity with these key concepts will help you interpret data, avoid common pitfalls, and make more rational decisions. The terms below are organized by category—from core technical indicators to behavioral psychology concepts—so you can build your knowledge systematically. Each definition includes practical context to help you apply these ideas in real market scenarios.
A proprietary index developed by Sentimnt that synthesizes volatility, volume, and social sentiment to measure the intensity of market panic. A score of 75+ indicates extreme panic (Buy signal), while 0-25 indicates euphoria (Sell signal). For example, during the March 2020 market crash, indices saw MSI readings spike well above 80, signaling extreme collective panic. Historically, such elevated readings have preceded significant market recoveries within 30 to 90 days. The MSI is designed to be most useful as a contrarian tool—alerting investors when market fear may be creating a mispriced opportunity.
A momentum indicator used in technical analysis that measures the magnitude of recent price changes to evaluate overbought or oversold conditions. Traditionally, an RSI above 70 is considered overbought, and below 30 is considered oversold. For instance, if a stock's RSI drops below 30 after a sharp sell-off, it may indicate that selling pressure is becoming exhausted and a technical bounce could be near. However, RSI alone should not be the sole basis for a decision—it works best when combined with other indicators like the Market Scream Index to confirm a signal and reduce false positives.
A volatility indicator consisting of a moving average (middle band) and two standard deviation lines (upper and lower bands). When prices touch the lower band, it may indicate the asset is oversold; when they touch the upper band, it may be overbought. For example, a stock trading consistently near the lower band during a period of high market fear may be in a deeply oversold state. Bollinger Bands are particularly useful when combined with volume data to confirm whether a price move toward a band extreme is sustainable or likely to reverse.
A trend-following momentum indicator that shows the relationship between two moving averages of a security's price. Traders look for signal line crossovers to identify bullish or bearish momentum shifts. When the MACD line crosses above the signal line, it is typically interpreted as a bullish signal; when it crosses below, it is bearish. Traders often combine MACD with other tools like RSI or sentiment indicators to filter out false crossover signals and improve the overall accuracy of their trading decisions.
Key price levels where an asset historically has difficulty breaking through. 'Support' is a price floor where buying interest is strong, and 'Resistance' is a price ceiling where selling interest is strong. These levels are identified by analyzing historical price charts and observing where prices have repeatedly reversed or consolidated in the past. When a stock breaks decisively through a resistance level with strong volume, that level often flips and becomes a new support—a concept traders refer to as 'role reversal.' Understanding support and resistance is fundamental to identifying optimal entry and exit points in any trade.
An investment style that goes against prevailing market trends by buying assets that are performing poorly (when fear is high) and selling when they are performing well (when greed is high). Famous contrarian investors like Warren Buffett and Benjamin Graham built their fortunes by purchasing assets at deep discounts during market panics. The key challenge of contrarian investing is emotional discipline—it requires the ability to act rationally and decisively when the majority of market participants are driven by fear or euphoria. The Market Scream Index is specifically designed to support this approach by providing an objective, data-driven measure of market sentiment.
A psychological phenomenon where investors buy an asset at high prices because they see others making money and fear missing out on potential profits. This often happens near market tops. FOMO-driven buying frequently pushes prices to unsustainable levels, setting the stage for sharp corrections when sentiment inevitably reverses. Recognizing FOMO—whether in yourself or in the broader market—is a critical skill for any disciplined investor. Tracking sentiment indices like the MSI can help you identify when collective greed may be driving prices above fair value.
A strategy or phenomenon where negative information is spread to create fear and lower asset prices. Contrarians often see FUD as a potential buying opportunity if the underlying fundamentals remain strong. For example, coordinated negative sentiment on social media can temporarily depress a stock's price even when its business remains fundamentally healthy. Investors who learn to distinguish genuine fundamental risks from manufactured FUD often find attractive entry points during these dips. The key is to separate emotional reactions to the news cycle from objective analysis of a company's financial health.
A rapid increase in the price of a stock primarily due to short sellers covering their positions (buying back shares) to limit losses, which fuels further price increases in a self-reinforcing cycle. Short squeezes can be extremely violent and rapid, sometimes causing prices to double or more within just a few trading days. The January 2021 GameStop (GME) rally is one of the most dramatic and widely discussed examples of a short squeeze in modern market history. While short squeezes can deliver outsized returns, they are also highly unpredictable and carry significant risk for traders who enter late in the cycle.
A temporary recovery in share prices after a substantial fall. The name comes from the idea that 'even a dead cat will bounce if it falls from a great height.' It is a common trap for bullish investors during a bear market. Investors should be cautious about interpreting a dead cat bounce as a true recovery or the beginning of a new uptrend. Typically, the bounce is short-lived and is followed by a resumption of the broader downward trend, making it a potentially dangerous time to initiate new long positions unless confirmed by strong fundamental or technical evidence.