Fear and Greed Index
The crypto market is greatly affected by the sentiment of traders. By understanding what sentiment prevails now, you can more confidently determine when to start trading.
What is Fear and Greed Index
That is a metric that shows the current state of the crypto world. The Fear and Greed Index in crypto is measured from 0 to 100. If the value is 0, investors are afraid to open deals with a particular asset. This condition is called “extreme fear.” If the value is at maximum, market players become very greedy. Thus, the price increases, which is often followed by a decrease.
The crypto market Panic Index can give a hint for opening or closing positions. Still, experts’ opinions about this indicator split: some recommend applying it carefully, and others advise against using it. Nevertheless, knowing market sentiment will be a great addition to other analysis tools.
Crypto market fear and greed index
The metric is based on the stock market analog. BTC Fear and Greed Index is based on the hypothesis that we are all guided by emotions when purchasing and selling digital assets. With high greed, a lost profit syndrome or FOMO is formed, and when prices fall, traders tend to get rid of cryptos.
Fear Greed Index has four values:
- if you see 0-24 points colored in red, that is an extreme fear condition;
- if you see 25-49 points colored in orange, that is fear;
- if you see 50-74 points colored in light green, that means the greed sentiment prevails;
- extreme greed is colored in green and ranges from 75 to 100 points.
The primary fear&greed index was created for BTC, as it directly influences all other digital assets. Apart from the digital gold, the Fear and Greed Index now exists also for Ether, although on cgfi.io, you can track some altcoins (Shiba Inu (SHIB), Cardano (ADA), and others).
How is BTC Fear and Greed Index calculated
Websites do that on their own and show you just the final greed or fear value. The calculations include several factors.
Volatility. The present volatility and max BTC drops are measured and compared with the average values for the past 1 and 3 months. High volatility reflects high fear.
Max volume & market momentum. These values are measured and compared with similar indicators for the past 1 and 3 months. Then both values are added. Large purchase volumes indicate bullish sentiment, which leads to the rise of the market Fear and Greed Index.
Social networks. Twitter and Reddit tags and mentions are analyzed for this metric.
BTC dominance and Google Trends. BTC-related search queries are analyzed, and their general interest is assessed.
It is easy to find the Fear and Greed Index today or any other day, as it is updated daily. However, the update timeframe depends on the website you use for tracking (sometimes, the data is refreshed every few hours or even minutes).
Using an API to get fresh values without regular website checks is also possible.
Can the Index of Fear and Greed help in long-term trading
You shouldn’t rely on it if you want to enter long-term deals because fear-greed cycles usually change several times during one rising (or falling) trend. The indicator can suggest a good moment of purchase (for example, during “extreme fear”). As with all other crypto indicators, this one only helps to determine a time but can’t guarantee a favorable outcome for any deal.
Skeptics generally believe that the standard buy and hold strategy outperforms the cryptocurrency Fear and Greed Index in terms of profits.
To get positive results in crypto trading, you need to learn how to overcome your feelings and trade only with a cool head. Having a trading plan or even a strategy is a must.
You can also control emotions by reducing the volume of transactions or by recording all your trading actions in a journal.
Remember that the Fear and Greed Index for crypto is just an additional indicator that will show the overall sentiment, but in no way is it an accurate signal to enter or close deals. Always make your assessment and take advantage of other market analysis methods. Thus, you can make reasonable decisions about further trading actions.
What causes crypto panic
When the asset’s price drops, traders in panic sell crypto because they are afraid to lose money (FOMO). Many traders are guided by emotions when they need to create and follow a plan. Panic is common among newbies because they cannot fully understand the nature of volatility. The BTC Fear Greed Index aims to protect traders from their emotions.