Sentiment Analysis with AI in Crypto Trading

Sentiment Analysis with AI in Crypto Trading

Market sentiment determines the depth and intensity of its fluctuations. Since the crypto market is extremely volatile, sentiment analysis for a trader is not a whim but an urgent need.

Delegating this task to an AI crypto trading bot reduces the trader’s workload and significantly increases the accuracy of the analysis. In addition, the content coverage becomes many times wider because discussions and articles in foreign languages ​​​​can be easily included in the dataset.

Thus, a trader can accurately predict the behavior of sellers and buyers and understand their emotions in the context of the dominant ones.

Why Do You Need to Know Sentiments in the Cryptocurrency Market?

How often have you bought an unnecessary thing just because you were in the mood to buy something or noticed new fashion trends? The cryptocurrency market has many similarities with any other market:

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• Some buyers come to make well-thought-out and balanced investments.
• Others buy with the aim of reselling crypto later at a higher price.
• Still, others are influenced by the general market sentiment in their desire to buy a particular cryptocurrency.

The same applies to selling:

• Some sell crypto to invest the proceeds in a more profitable project.
• Others expect the price of a particular cryptocurrency to fall. That is why they seek to get rid of it at a still high price.
• And someone has fallen into panic under the pressure of public opinion. They formed a conviction that this crypto project has collapsed and will not rise again.

This way, supply and demand in the crypto market are constantly fluctuating. And the general emotional atmosphere in the market makes a significant contribution to these fluctuations.

Traders and investors constantly monitor quotes, read analytical reports and news, and discuss crypto projects on social networks and forums. All this creates a certain level of noise, which can be either welcoming and optimistic or alarming and panicky. Having succumbed to these emotions, traders rush to make certain operations with crypto — buy or sell it. And if you master the analysis of market sentiment, you will be able to predict which way the market will swing in the near future.

How AI Crypto Trading Bots Help in Sentiment Analysis

If you set a goal to analyze market sentiment in addition to technical and fundamental analysis, you will realize the huge burden of additional work. Browsing the forums of the most active crypto communities, reading blogs and multiple social networks accounts of opinion leaders takes a lot of time.

In addition, the emotions of traders who conduct the analysis are also subject to market sentiment. This means they cannot be 100% objective and make a detached and disinterested decision. But AI crypto trading bots can easily handle what a person cannot do. Today, they are effectively used to conduct technical, fundamental, and sentiment analysis.

Emotion Recognition

Artificial intelligence can detect superficial emotions and more persistent sentiments behind a mass of words. To cope with this task, programmers use Natural Language Processing (NLP) and Machine Learning technologies. By recognizing emotions, you will be able to guess trends, since most people are guided exactly by their emotions rather than by rational strategies.

Identifying Patterns

Identifying certain patterns in huge amounts of data is a special task that AI performs effectively. AI bots have access to a huge amount of historical data as well. They can recognize current market sentiment but also see what actions traders have taken in the past in a similar situation. This way, you will know to what extent some market hype is momentary, or is it capable of reversing trends.

Building Accurate Forecasts

Recognizing patterns and knowing what sentiments are currently shaping the market, AI can build predictive models. This way, you will know the potential of the cryptocurrency pairs you trade not only in the short but also in the medium term. This will allow you to plan the necessary actions and adapt your trading strategy considering the results of sentiment analysis.

Fast and Informed Decisions

Another important feature of AI bots is their high speed. They can work with multiple sources of information in parallel, rather than sequentially, as a person does. This means that in a situation where you need to act immediately, they will not miss the moment. If you delegate the right to make a decision to them, they will act at the most appropriate moment.

How to Conduct Sentiment Analysis with AI Bots

Market sentiment analysis is conducted in several stages. But since Artificial Intelligence has a huge speed, an outside observer may think that all this happens at once.

1. Collection of relevant textual information. The AI ​​bot uses blogs, social media platforms, Telegram channels, Reddit, specialized forums, etc. as sources of information.
2. Data pre-processing. This stage includes removing noise from the text, such as emoji, punctuation, URLs, etc.
3. Text tokenization. By breaking the text into words and phrases, AI ​​creates an ordered database, which it will subsequently classify and analyze.
4. Text analysis. The AI ​​bot counts the frequency of words and their position and classifies the content sentiment.
5. Data visualization. To make it easier for a trader to interpret the data, the AI ​​bot creates visual charts, diagrams, drawings, etc. These visual models contain an assessment of the current market sentiment and hints on how a trader should act.

One of the important features of the AI ​​crypto trading bot is that it can carry out all stages of sentiment analysis in many languages. Therefore, you will be aware of the sentiment in the local and the global context. And since state borders are not significant when trading crypto, this will become your competitive advantage.

Conclusion: The Future of AI-Powered Sentiment Analysis

The effectiveness of advanced AI bots seems like a miracle. Still, this is not their full potential. That is why programmers try to expand their functions to give traders even more competitive advantages. In the future, the AI ​​crypto bot will analyze not only text but also audio and video recordings. And since video is becoming increasingly important for communication, analyzing this information will allow you to adjust the assessment of sentiment and predict future trends.