How is the composite sentiment score calculated?

The composite sentiment score combines six weighted indicator categories on a scale from -100 to +100: Fear and Greed Index (20%), Funding Rates (20%), Social Sentiment (15%), News Sentiment (15%), On-Chain Flows (20%), and Positioning Data (10%). Each category produces a sub-score that is weighted and summed into the final composite. Scores above +75 indicate euphoria, while scores below -75 indicate capitulation.

When should I use sentiment as a contrarian signal?

Contrarian signals are only reliable at EXTREME readings -- composite scores above +75 (euphoria) or below -75 (capitulation). At these levels, the crowd is typically wrong and a reversal is likely. Moderate readings of +50 to +75 or -50 to -75 are caution signals but not strong enough for contrarian trades. The crowd can be right for extended periods during trending markets, so always require extreme readings before going contrarian.

Is sentiment analysis enough to make a trading decision?

No. Sentiment is a secondary signal that should confirm or contradict a directional view from technical analysis or fundamental analysis. Never trade solely on sentiment. Use it to adjust position sizes, tighten stops, or validate entries -- but always combine with at least one primary analysis method before entering a trade.

Sentiment Analysis | CLI Trader

This skill constructs a composite sentiment score by combining multiple independent sentiment indicators — from quantitative funding rates to qualitative social media analysis — into a single actionable framework. Sentiment is a secondary signal: it confirms or contradicts directional analysis from technical or fundamental methods and identifies extreme conditions where contrarian positioning has an edge.

When to Use This Skill

When assessing overall market mood before entering a trade
When looking for contrarian signals at sentiment extremes
When analyzing funding rates for crypto positioning data
When evaluating social media sentiment around a specific asset
When determining if the crowd is overly bullish or bearish
When news events are driving price action and you need to assess impact
When combining sentiment with technical or fundamental analysis
When monitoring on-chain flows for institutional vs. retail behavior

What This Skill Does

Composite Scoring: Combines 6+ independent sentiment indicators into a single score (-100 to +100)
Fear & Greed Interpretation: Maps index readings to actionable trading signals
Funding Rate Analysis: Extracts positioning data from perpetual futures funding
Social Sentiment Parsing: Processes Twitter/X, Reddit, and Telegram signal from noise
News Sentiment Assessment: Evaluates headline and event-driven sentiment shifts
On-Chain Sentiment: Interprets exchange flows, stablecoin flows, and long/short ratios
Regime Classification: Classifies current market into euphoria, optimism, neutral, fear, or capitulation
Contrarian Signal Detection: Identifies when extreme sentiment creates actionable contrarian opportunities

How to Use

Overall Market Sentiment

What is the current market sentiment for crypto / equities?

Run a full sentiment analysis on [asset].

Specific Indicator

What are Bitcoin funding rates telling us right now?

Analyze social sentiment for [ticker] on Twitter and Reddit.

Contrarian Signals

Is the market too bullish? Should I be cautious?

Everyone is bearish on [asset]. Is this a contrarian buy signal?

Data Sources

With MCP/CLI tools connected:

Crypto Sentiment MCP — Aggregated crypto sentiment scores, Fear & Greed index
CoinGecko MCP / CoinGecko Price MCP — Market data, social stats, developer activity
CoinMarketCap MCP — Market cap data, exchange volumes, social metrics
Hive Crypto MCP — Crypto social sentiment, influencer tracking
Binance MCP / Bybit MCP / OKX MCP — Funding rates, long/short ratios, open interest
DeFiLlama MCP — TVL flows, protocol sentiment via capital movement
yFinance MCPs — Equity sentiment via options flow, put/call ratio, short interest

Without tool access: Ask the user to provide:

Current Fear & Greed index reading (crypto or equity)
Funding rates for the asset(s) in question
Any social media observations (trending topics, sentiment of posts)
Recent news headlines affecting the asset
Exchange flow data if available (deposits/withdrawals)
Their subjective read on market mood

Proceed with analysis using provided data. Note which indicators are based on data vs. qualitative assessment.

Methodology

Step 1: Composite Sentiment Score Construction

Build the composite score from 6 independent indicator categories. Each category produces a sub-score from -100 (extreme fear/bearish) to +100 (extreme greed/bullish).

COMPOSITE SENTIMENT SCORE

  Score = Sum(Weight_i x SubScore_i) for all categories

  Category Weights (must sum to 100%):
    Fear & Greed Index:    20%
    Funding Rates:         20%
    Social Sentiment:      15%
    News Sentiment:        15%
    On-Chain Flows:        20%
    Positioning Data:      10%

  Final score range: -100 to +100

Score interpretation:

Composite Score	Regime	Signal	Action
+75 to +100	Euphoria	Extreme greed	STRONG CONTRARIAN SELL signal
+50 to +75	Greed	Bullish crowd	CAUTION — reduce position sizes
+25 to +50	Optimism	Mildly bullish	Trend-following OK, tighten stops
-25 to +25	Neutral	No strong signal	Rely on technical/fundamental analysis
-50 to -25	Fear	Mildly bearish	Watch for bottoming signals
-75 to -50	High Fear	Bearish crowd	START building contrarian long positions
-100 to -75	Capitulation	Extreme fear	STRONG CONTRARIAN BUY signal

Step 2: Fear & Greed Index Analysis

CRYPTO FEAR & GREED INDEX (0-100 scale)
  Source: alternative.me or similar aggregators
  Components: Volatility (25%), volume (25%), social (15%),
              dominance (10%), trends (10%), surveys (15%)

  Interpretation:
    0-24:   EXTREME FEAR — historically excellent buy zone
    25-44:  FEAR — good accumulation zone
    45-55:  NEUTRAL — no sentiment signal
    56-74:  GREED — caution, trend may be extended
    75-100: EXTREME GREED — historically excellent sell zone

  Conversion to sub-score: SubScore = (Index - 50) x 2
    Example: Index at 20 → SubScore = (20 - 50) x 2 = -60

EQUITY FEAR & GREED (CNN Fear & Greed Index)
  Components: Put/call ratio, market momentum, stock price breadth,
              junk bond demand, VIX, safe haven demand, stock price strength
  Same 0-100 scale, same interpretation framework

HISTORICAL BACKTEST
  Crypto: Buying when Fear & Greed < 20 has yielded average 30-day
          returns of +18% (BTC, 2018-2024)
  Crypto: Buying when Fear & Greed > 80 has yielded average 30-day
          returns of -8% (BTC, 2018-2024)
  Note: These are averages — individual instances vary widely

Step 3: Funding Rate Analysis

Funding rates in perpetual futures reveal crowd positioning:

FUNDING RATE INTERPRETATION

  Positive funding (longs pay shorts):
    Mild positive (0.01-0.03%): Normal bull market conditions
    High positive (0.03-0.10%): Overleveraged longs, correction risk
    Extreme positive (>0.10%):  DANGER — long squeeze likely imminent
    Sub-score: Map 0% → 0, 0.05% → +50, 0.10%+ → +100

  Negative funding (shorts pay longs):
    Mild negative (-0.01 to -0.03%): Normal bear market conditions
    High negative (-0.03 to -0.10%): Overleveraged shorts, bounce likely
    Extreme negative (<-0.10%): DANGER — short squeeze likely imminent
    Sub-score: Map 0% → 0, -0.05% → -50, -0.10%+ → -100

FUNDING RATE CONTEXT
  Always check:
    1. Duration: Sustained high/low funding (>3 days) is more significant
    2. Open interest: Rising OI + extreme funding = higher squeeze probability
    3. Cross-exchange: Consistent across Binance, Bybit, OKX = stronger signal
    4. Divergence: If price is flat but funding is extreme = tension building

ACTIONABLE LEVELS (BTC as reference)
  Funding > 0.05% for 3+ days: Reduce long exposure, consider short hedge
  Funding < -0.05% for 3+ days: Reduce short exposure, consider long entry
  Funding > 0.10%: Do NOT open new longs on leverage
  Funding < -0.10%: Do NOT open new shorts on leverage

SOCIAL SIGNAL PROCESSING

TWITTER/X ANALYSIS
  Metrics to track:
    - Mention volume: Abnormal spike (>3x average) = attention event
    - Sentiment polarity: Ratio of bullish to bearish mentions
    - Influencer alignment: When >70% of crypto influencers agree = contrarian flag
    - Hashtag velocity: Rate of trending topic acceleration

  Signal quality hierarchy:
    1. On-chain analysts with track records (HIGH weight)
    2. Institutional accounts and researchers (MEDIUM-HIGH weight)
    3. Experienced traders with history (MEDIUM weight)
    4. General crypto twitter (LOW weight — mostly noise)
    5. Engagement-farming accounts (ZERO weight — ignore entirely)

REDDIT ANALYSIS
  Subreddits: r/cryptocurrency, r/Bitcoin, r/ethtrader, r/wallstreetbets
  Metrics:
    - Post sentiment ratio (bullish/bearish/neutral)
    - Comment sentiment in top posts
    - Daily active discussion volume
    - Upvote patterns on sentiment-revealing posts
  Signal: Reddit sentiment is a lagging indicator — useful for extremes only

TELEGRAM ANALYSIS
  Monitor: Alpha groups, whale alert channels, project communities
  Signal types:
    - Whale alerts: Large transactions indicating accumulation or distribution
    - Alpha calls: New token/trade ideas gaining traction
    - FUD/FOMO cycles: Track narrative shifts in real time
  Warning: High manipulation risk in Telegram — verify signals independently

NOISE FILTERING RULES
  - Ignore accounts <6 months old
  - Ignore posts with engagement-to-content ratio anomalies (bot activity)
  - Weight verified accounts higher (but verification is not credibility)
  - Discount any post with price targets ("BTC to $200K!") — low signal
  - Focus on reasoning quality, not follower count
  - Aggregate across platforms — single-platform signals are unreliable

SOCIAL SENTIMENT SUB-SCORE
  Bullish consensus > 80%: SubScore = +75 to +100 (contrarian bearish signal)
  Bullish consensus 60-80%: SubScore = +25 to +75
  Mixed 40-60%: SubScore = -25 to +25
  Bearish consensus 60-80%: SubScore = -25 to -75
  Bearish consensus > 80%: SubScore = -75 to -100 (contrarian bullish signal)

Step 5: News Sentiment Assessment

NEWS SENTIMENT FRAMEWORK

EVENT CLASSIFICATION
  Tier 1 — Market-moving (immediate impact):
    - Fed rate decisions, CPI/PPI releases
    - Regulatory actions (SEC lawsuits, bans, approvals)
    - Major hack/exploit events
    - ETF approvals/rejections
    - Geopolitical shocks (war, sanctions)
  Tier 2 — Significant (hours to days):
    - Protocol upgrades, forks
    - Major partnership announcements
    - Quarterly earnings (for crypto-adjacent companies)
    - Exchange listings/delistings
  Tier 3 — Noise (ignore or discount):
    - Influencer opinions, price predictions
    - Routine development updates
    - Repetitive narrative recycling

NEWS SENTIMENT SCORING
  For each Tier 1/2 event in the last 7 days:
    Strong positive: +20 to +30 (ETF approval, major adoption)
    Moderate positive: +10 to +20 (partnership, protocol upgrade)
    Neutral: 0
    Moderate negative: -10 to -20 (regulatory warning, hack)
    Strong negative: -20 to -30 (exchange collapse, ban)

  News Sub-Score = Sum of event scores, capped at +-100
  Decay: Reduce score by 30% per week (news impact fades)

HEADLINE VS. REALITY CHECK
  - "Buy the rumor, sell the news": Positive events often priced in before announcement
  - "Sell the fear, buy the recovery": Negative events often overshoot initially
  - Check: Has price already moved significantly before the headline?
    If yes: Fade the move (contrarian to headline sentiment)
    If no: Follow the sentiment (early reaction phase)

Step 6: On-Chain Sentiment Indicators

ON-CHAIN SENTIMENT (Crypto-specific)

EXCHANGE FLOWS
  Net inflows to exchanges: BEARISH (coins moved to sell)
  Net outflows from exchanges: BULLISH (coins moved to cold storage)
  Magnitude matters:
    Normal: +-0.1% of circulating supply per day
    Significant: +-0.5% of circulating supply per day
    Extreme: +-1.0% of circulating supply per day → strong signal

STABLECOIN FLOWS
  Stablecoins flowing TO exchanges: BULLISH (buying power arriving)
  Stablecoins flowing FROM exchanges: BEARISH (buying power leaving)
  Total stablecoin market cap rising: Macro bullish (new capital entering)
  Total stablecoin market cap falling: Macro bearish (capital exiting)

LONG/SHORT RATIO
  Source: Binance, Bybit, OKX aggregate
  Ratio > 1.5: More longs than shorts → CAUTION (crowded long)
  Ratio 0.8-1.2: Balanced → NEUTRAL
  Ratio < 0.7: More shorts than longs → CAUTION (crowded short)

WHALE BEHAVIOR
  Whale accumulation (large wallets increasing balance): BULLISH
  Whale distribution (large wallets decreasing balance): BEARISH
  New whale addresses appearing: BULLISH (new large participants)
  Track: Addresses holding >1000 BTC, >10,000 ETH

OPEN INTEREST
  Rising OI + rising price: Strong trend, sustainable → BULLISH
  Rising OI + falling price: Shorts building → BEARISH (until squeeze)
  Falling OI + rising price: Short covering rally → WEAKLY BULLISH (may fade)
  Falling OI + falling price: Long capitulation → BEARISH (until exhaustion)

ON-CHAIN SUB-SCORE CALCULATION
  Weight each on-chain indicator equally (20% each for 5 indicators)
  Score each -100 to +100 based on current readings
  Aggregate for on-chain sub-score

Step 7: Sentiment Regime Classification

After computing the composite score, classify the market regime:

REGIME CLASSIFICATION

EUPHORIA (Score +75 to +100)
  Characteristics:
    - "This time is different" narrative dominant
    - Leverage at multi-month highs
    - Mainstream media coverage overwhelmingly positive
    - New participant influx (sign-ups, app downloads)
    - Social sentiment >85% bullish
  Trading response:
    - Begin scaling out of long positions
    - Tighten all stop-losses to lock in profit
    - Do NOT initiate new longs
    - Consider small contrarian short positions (with defined risk)
    - Reduce overall portfolio leverage to minimum

OPTIMISM (Score +25 to +75)
  Characteristics:
    - Healthy uptrend with normal pullbacks
    - Funding mildly positive
    - Social sentiment 60-75% bullish
    - Increasing but not extreme volume
  Trading response:
    - Trend-following strategies appropriate
    - Normal position sizing
    - Maintain stop-losses at technical levels
    - Begin developing exit plans for core positions

NEUTRAL (Score -25 to +25)
  Characteristics:
    - No dominant narrative
    - Mixed signals across indicators
    - Range-bound price action
    - Balanced funding, balanced social sentiment
  Trading response:
    - Rely on technical and fundamental analysis
    - Mean-reversion strategies may work well
    - Reduce position sizes (lower conviction environment)
    - Watch for regime transition signals

FEAR (Score -75 to -25)
  Characteristics:
    - Negative headlines dominating
    - Funding turning negative
    - Social sentiment 60-75% bearish
    - Exchange inflows increasing
  Trading response:
    - Begin identifying accumulation targets
    - Use small position sizes (DCA into fear)
    - Set limit buy orders at support levels
    - Maintain cash reserves for lower prices

CAPITULATION (Score -100 to -75)
  Characteristics:
    - "Crypto is dead" narratives, extreme despair
    - Funding extremely negative
    - Social sentiment >85% bearish
    - High-volume selling, market-wide liquidations
    - VIX > 35 (equities) or equivalent crypto volatility spike
  Trading response:
    - STRONGEST CONTRARIAN BUY SIGNAL
    - Begin significant accumulation (still size per risk-management rules)
    - Buy in tranches (3-5 entries over days/weeks)
    - Expect volatility — positions may go further negative before recovery
    - Historical average recovery from capitulation: +40% within 90 days (BTC)

Anti-Patterns

DO NOT do these — they are the most common sentiment analysis mistakes:

Using sentiment as a primary signal: Sentiment is a secondary/confirming indicator. Never trade solely on sentiment — always combine with technical or fundamental analysis.
Acting on single indicators: One social media post or one funding rate snapshot is not a signal. Require confirmation across multiple independent indicators.
Confusing volume with quality: High social media volume means attention, not direction. A trending ticker can be bullish or bearish — analyze the content, not just the count.
Following influencer calls: Influencers have incentives misaligned with your portfolio. They may be paid promoters, front-running their audience, or simply wrong. Use their output as one data point, never as a trading signal.
Ignoring time decay of sentiment: Sentiment signals have a shelf life. A capitulation event from 2 weeks ago is not the same as capitulation happening now. Use the most recent 3-7 days of data.
Contrarian trading without confirmation: “Everyone is bullish so I should short” is simplistic. Contrarian signals require EXTREME readings (>75 or <-75), not merely strong readings. The crowd can be right for extended periods.
Over-weighting news: News creates short-term sentiment shifts that frequently reverse. Wait 24-48 hours for the “news digestion” period before acting on major headlines.
Ignoring the macro backdrop: Sentiment analysis during a macro bull market is different from a macro bear market. Bullish sentiment in a bull market is normal, not extreme. Calibrate against the current regime.

Validation Checkpoints

Input Validation

At least 3 of 6 indicator categories have data available
Data is recent (within 24-48 hours for most indicators)
Asset or market scope is clearly defined (BTC, crypto broad, equities, specific token)
Multiple data sources consulted (not relying on a single platform)
Historical context available (what is “normal” for this indicator?)
User’s existing position known (to assess bias in their question)

Output Validation

Composite score calculated with weights and sub-scores shown
Regime classification stated with supporting evidence
All 6 indicator categories assessed (or noted as unavailable)
Contrarian signals flagged only at extreme levels (>75 or <-75)
Actionable recommendation includes specific position management guidance
Sentiment signal explicitly labeled as secondary (not primary) signal
Time horizon specified for the sentiment read (short-term vs. structural)
Caveat: extreme sentiment can persist longer than expected
Risk management cross-reference included per Risk Management framework

Example

User: “What is the current sentiment for Bitcoin? Is it safe to go long?”

Analysis:

## Bitcoin Sentiment Analysis

### Composite Sentiment Score: +62 (GREED / OPTIMISM)

### Sub-Score Breakdown

| Category | Score | Weight | Weighted |
|----------|-------|--------|----------|
| Fear & Greed Index | +70 (Index: 72) | 20% | +14.0 |
| Funding Rates | +55 (0.035% avg) | 20% | +11.0 |
| Social Sentiment | +65 (72% bullish) | 15% | +9.75 |
| News Sentiment | +50 (ETF inflow headlines) | 15% | +7.50 |
| On-Chain Flows | +60 (exchange outflows, stablecoin inflows) | 20% | +12.0 |
| Positioning Data | +75 (L/S ratio 1.4) | 10% | +7.50 |
| **Composite** | | | **+61.75** |

### Regime: OPTIMISM (approaching GREED boundary)

### Indicator Details
- Fear & Greed: 72 — approaching greed territory but not extreme
- Funding: 0.035% — longs paying shorts, moderately crowded
- Social: 72% bullish Twitter/X sentiment — elevated but not extreme
- News: Positive ETF flow headlines, no major negative catalysts
- On-Chain: Net exchange outflows (accumulation), stablecoin inflows (buying power)
- Positioning: L/S ratio 1.4 — longs outnumber shorts, getting crowded

### Assessment
Sentiment is BULLISH but NOT at contrarian-sell extremes.
The composite score of +62 is in the upper optimism range,
approaching greed but not in the euphoria danger zone (>+75).

### Recommendation
- Going long is NOT contrarian-stupid, but it is NOT a high-conviction entry
- Sentiment supports existing longs but does not favor aggressive new longs
- Recommended approach:
  1. If entering long: use 50-75% of normal position size
  2. Tighten stop-loss to protect against sentiment reversal
  3. Set alerts for composite score crossing +75 (reduce exposure)
  4. Combine with technical analysis — is there a pullback entry?
- WARNING: Do not add leverage at this sentiment level
  (funding already elevated at 0.035%)
- Review: Re-assess sentiment in 3-5 days for trend shift

### Sentiment is a SECONDARY signal
This analysis should CONFIRM or CONTRADICT a directional view
from technical-analysis or fundamental-analysis.
Do not trade on sentiment alone.