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What Is The Fear & Greed Index In The Crypto Space?

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When it comes to determining whether to buy or sell to exit the cryptocurrency market, we will normally always look for supporting data. Charts to look at, fundamentals to analyze, and having the right market sentiment to mine will help us better survive in the crypto space. Including the fear and greed index (Fear & Greed).

What is the Fear and Greed Index? 

Fear and Greed Index is a combination of sentiment analysis and fundamental indicators that allows you to quickly capture fear and greed in the markets. This is a relatively widely known indicator. As the name suggests, this indicator will help you to know at the moment you are looking at the indicator, whether the market is scared or greedy. From there, a suitable trading strategy can be devised.

Fear & Greed Index does not appear for the first time in Crypto but was created by CNNMoney to analyze the traditional stock market. Later, Alternative.me created a corresponding version of the Crypto side.

How to read the Fear & Greed Index 

First, you need to visit here. Then scroll down to see this chart:


In order from left to right:

  • Figure 1: Fear & Greed Index chart. 
  • Figure 2: Fear & Greed Index Values: Present, Yesterday, Last Week, Last Month. 
  • Figure 3: Time for the next Fear & Greed Index update.

Note: The Fear & Greed Index is a number that runs from 0 – 100: 

  • From 0 – 49 represents Fear (fear). 
  • From 51 – 100 represents Greed (greed). 
  • 50 corresponds to a neutral market. However, if broken down more closely, the colors on the chart have the following meanings: 
  • 0 – 24: Extreme fear (orange). 
  • 25 – 49: Fear (yellow). 
  • 50 – 74: Greed (light blue). 
  • 75 – 100: Extreme greed (green).

Fear means that the market is showing bad signs, most asset values ​​are falling, people tend to sell everything. In contrast, a greedy market is a home to FOMO buying everything, property prices are always increasing every day.

Factors that make up the Fear & Greed Index 

To create the Fear & Greed Index, Alternative.me used the following six parameters:

Volatility (25%): Measured by comparing the current price volatility and maximum price drop of BTC with the previous 30- and 90-day averages, respectively.

Market Momentum/Volume (25%): Combine BTC’s current momentum and trading volume, then compare it to the previous 30- and 90-day averages.

  • Social Media (15%): This index is based on social network metrics like likes, hashtags, what people are talking about, number of posts, etc. Therefore, if the above indicators increase, the corresponding market gradually becomes greedy. Currently only available on Twitter.
  • Dominance (10%): Dominance here is of BTC, that is, what percentage of BTC’s market share is compared to the total cryptocurrency market capitalization, also known as BTC Dominance.
  • Trend (10%): Alternative.me takes Google Trends data for various Bitcoin-related search queries and processes those numbers, specifically the change in search volume and other popular searches suggested export.
  • Survey (15%) – now discontinued: Alternative.me uses the strawpoll.com voting platform to poll people about the market. Strawpoll.com is also part of Alternative.me.

Fear & Greed Index Accuracy

Similar to other indicators, the Fear & Greed Index has high accuracy. However, they are not always correct indicators. To make trading decisions, analysts often need to combine a number of other indicators such as chart analysis, on-chain data of BTC, ETH to see the general situation, on-chain data of the asset is growing. want to trade, etc.

The Fear and Greed Index is only applicable to the general market situation and updates very slowly, so it only provides an overview of the market, suitable for long-term players. If you are a short-term trader, closing orders within a day or a few days, this indicator is not necessarily necessary.

Besides that, there is no data to show how much the numbers are going to change the market. This means we all know when the market is greedy, there will be a time of strong correction. The problem is how much the Fear & Greed Index will be adjusted? That’s something we don’t know. So Fear & Greed Index is not used to help investors predict when the market will correct.

Also, in a Bull or Bear market, sometimes we still see the indicator leaning in the opposite direction. But that doesn’t mean the market has ended its trend and changed direction. It could be a small correction to establish a more sustainable big up/downtrend.

Conclude 

A look at the Fear & Greed index in the crypto space needs to be combined with a number of other indicators. Because it’s not entirely true in a volatile market like cryptocurrencies. For a more comprehensive and multi-dimensional view of Crypto, you should learn more other indicators before making any trading decisions.

Risk Disclaimer:

For investors, trading digital assets are both an opportunity and a challenge with outstanding profit potential. 5ROI Global only provides useful information for investors to grasp, and refer to and does not provide financial investment advice of any kind.

5ROI Global

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