SentimenTrader.com's Jason Goepfert Discusses Investor Sentiment

There are many different ways to approach investing in the financial markets, and many investors employ a combination of different strategies. Three broad investing strategies -- fundamental analysis, technical analysis and investor sentiment -- are discussed below.

Fundamental Analysis

Longer-term investors tend to follow a fundamental approach to the markets. This approach involves analyzing the the financial statements of a company. Sometimes referred to as quantitative analysis, this approach focuses on the revenue, expenses, assets and liabilities, as well as other financial aspects of a particular company.

The intent is to use all of this information in order to determine the long-term growth prospects for the company. Each quarter's earnings are analyzed to confirm that the the original analysis is correct and whether or not there have been any changes in the balance sheet that undermine the original premise for purchasing the issue.

Related Link: An Analysis Of Why Volatility Indices Are Relevant

Technical Analysis

A strategy utilized by both long- and short-term trading is technical analysis. This method evaluates securities by studying previous price history generated by market activity. Technicians are not necessarily interested in a security's intrinsic value, but attempt to identify patterns that may help predict future price activity.

Within this group, there are several different techniques and one has to be careful not to make the analysis more complicated than it needs to be. If not, “analysis paralysis” can set in and no decisive moves are ever made.

Measuring Investor Sentiment

Another popular form of investing focuses on investor sentiment. On Tuesday's #PreMarket Prep show, Jason Goepfert of Sundial Capital Research, explained why he created Sentimentrader.com and how it came about.

Goepfert's initial interest was spurred while managing the margin department for a discount brokerage firm. He was the one who had to inform clients they had exceeded their margin requirements and therefore had a position(s) that needed to be liquidated.

One very important thing he noticed in his positions was how emotional clients were when the bad news was delivered. “It was remarkable to me how emotional people got, because they were so leveraged to what the stock was doing.” That alerted him to the fact that people are not rational; clients become impulsive when they are panicking to exit the position(s), particularly when the positions indicate a major turning point in a issue or the overall market.

Goepfert went on discuss the details of his approach and how he incorporates Wall Street analyst ratings into his calculations. He complimented the research done by individual analysts, but expressed caution when the group as a whole begins to lean one way or another.

Watch the full interview below:

Don't forget to tune into Benzinga's #PreMarket Prep Show every morning from 8:00-9:45 a.m. to get a preview of the upcoming trading day, as well listen to other top industry experts reveal their approaches to these volatile markets.