While a realist knows the difference between pessimism and optimism.
This is most apparent at sentiment extremes. For example, during the stock market bottom of March 2009 the percentage of pessimistic traders & investors were at record highs. That signalled a wonderful buying opportunity.
Last week we saw a record number of weekly buying climaxes, which marks an exhaustion point for the bear-market rally since March 2009 low, together with multi-year extreme optimistic readings (not seen since the all-time market top in November 2007). Such levels of extreme sentiment signalled a wonderful selling opportunity.
"Extreme opinions, shared widely, constitute the single most reliable indicator of an impending change of direction for a market. If virtually everyone is thinking one way, they have already acted..." Robert Prechter.
