Definition ∞ Narrative trading describes an investment approach where market participants base their decisions on prevailing stories, popular beliefs, or compelling themes associated with specific digital assets or market sectors. This strategy often prioritizes the psychological impact of public perception and trending discourse over traditional fundamental analysis or technical indicators. It capitalizes on collective sentiment and information dissemination. Such trading relies on the influence of popular concepts.
Context ∞ Narrative trading frequently shapes short-term price movements in the digital asset markets, making it a recurring subject in cryptocurrency news and analysis. Reports often dissect the influence of popular storylines on token valuations and investor conduct. Recognizing and understanding these dominant narratives is essential for interpreting market dynamics and the speculative forces at play within the rapidly evolving digital asset ecosystem.
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