Crypto Fear and Greed Index

11.03.2022 |

For article about Crypto Fear and Greed Index

Although there are no precise signals mathematically calculated in financial markets that can indicate the optimal time to buy or sell an asset, however, in some cases, especially in combination with basic principles of technical analysis, it is quite often possible to predict the moments of market reversal. At the same time, it should be understood that the cryptocurrency market has its own specifics, where any news, even seemingly insignificant at first glance, can have a big impact.

Crypto Fear and Greed

Under fear and greed in the context of technical analysis of the cryptocurrency market, it is worth understanding the mood of investors at the moment. When the indicator indicates greed — it means that investors are ready to buy any volumes on the market at the prices offered. When a situation of fear arises, on the contrary, traders get rid of assets, often in panic moods.

This is primarily an emotional indicator, although it is based on mathematical and sociological metrics. So, such a concept as FOMO also has a great influence, meaning the trader’s fear of missing a good moment to enter the market, which leads to an increase in one of the selected moods.

What is the fear and greed index based on

  • Market impulses and volume. Based on the totality of these values, it is possible to draw a conclusion about moods. For example, buying an asset in large volumes for a certain time generates a momentum of quotations, the index deviates towards greed, which attracts additional buyers.
  • Comparative volatility of the two periods. If there is an increase in this value, then the indicator goes into the stage of fear, and this causes even more sales on the part of traders.
  • Dominance index. An increase in this indicator for one of the cryptocurrencies means that the market is inclined to trust this asset in a certain perspective. However, it should be borne in mind that the effect of increasing the dominance index is of a short-term nature.
  • Analysis of queries in search engines. An increase in the number of requests to Google indicates an increase in interest from newcomer cryptocurrency investors, and this, in most cases, means the arrival of traders on the market who are ready to buy at any price. Conversely, if the coin is searched less often, then the demand for it on online cryptocurrency exchanges will decrease.
  • And last — semantic analysis of social networks. Here they consider the mention of a particular cryptocurrency in various social networks, which allows us to talk about an increase or decrease in interest from a more “advanced” community.

Equally important, but increasingly rarely used, can also be a survey of experienced and large cryptocurrency investors and traders. Their opinion is based not only on the “crowd” effect, but also gives the opinion of the most experienced part of the community, without which it is more difficult to build a full-fledged indicator.

Where to see the Fear and greed index and its disadvantages

There are several services that calculate the fear and greed index, for example, allows you to quickly view this indicator in a convenient way, understandable even to a novice investor. Every trader finds his sources, but you can start with the above as the simplest.

As we have already said, it is not necessary to perceive the “fear and greed” index as the ultimate truth. However, it is a convenient tool for building your own conclusions based on a lot of collected data in a convenient way. It is because of the compilability that the index gives quite a lot of misfires at the time of evaluation, so, for example, if the direction changes from fear to greed, then the indicator will indicate this already at the moment of the transition of the “equator”, and the trader has little time to make decisions and make a profit.