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Sentiment Analysis

Trading Term

Sentiment analysis is an AI technique that evaluates the emotional tone or attitude expressed in text data to gauge public opinion about companies, markets, or the economy. It is widely used in finance to assess the likely impact of news, earnings calls, analyst reports, or social media chatter on asset prices.

For example, a sentiment analysis tool might process hundreds of tweets about a company like Tesla, determining whether the overall sentiment is positive, negative, or neutral. If negative sentiment spikes unexpectedly, it could signal potential price declines, prompting traders to adjust their positions accordingly. Similarly, hedge funds use sentiment analysis to react quickly to breaking news and emerging trends.

AI-powered sentiment analysis often uses Natural Language Processing (NLP) and machine learning to interpret the subtleties of language, such as sarcasm or context, making it more sophisticated than simple keyword searches. By quantifying qualitative data, sentiment analysis adds another dimension to traditional market analysis, improving responsiveness and decision-making in real time.

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