Fear and Greed Index – successful decision of crypto investment
Predicting the future direction of the cryptocurrency market is extremely difficult, but a few indicators such as the fear and greed index can give us a little clue to judge the future trend.
What is the Fear and Greed Index?
Fear and Greed Index generates a unique value between 1 and 100. When the value of the indicator is between 0-24 it shows that the market is falling into a state of extreme fear. A reading between 24-50 represents fear and 50 means neutrality in the market. On the contrary, when this indicator goes from level 51-74 it is indicating that the market is excited and if this value goes above 74 it shows that the market is extremely greedy.
In the cryptocurrency market, emotions greatly influence prices. When seeing a bull market, investors are afraid of missing opportunities and vice versa when the market is falling, they often have sell-off sentiment.
How is it calculated?
The fear and greed index will be calculated based on the following factors:
Statistics of trending phrases such as Bitcoin, crypto (accounting for 10%)
Next is data from surveys from investors who think about the market (accounting for 15%).
Market momentum refers to the ability of the market to maintain a long-term price trend (accounting for 25%). It shows the health and trend of the market
Dominance – Bitcoin’s dominance index in the market, the larger it is, the harder it is for altcoins to grow and vice versa (accounts for 10%)
Social media (accounting for 15%) influences this indicator because it is currently one of the most important aspects of our lives.
A quarter (ie 25%) of the index is made up of market volatility. It examines the current price of a cryptocurrency (such as the Bitcoin price) and compares it with recent price movements over the previous 30–90 days to determine market volatility.
How to use the fear and greed indicator in trading?
The fear and greed index will be a wise way to help you determine when to invest. For example, when it is low, it implies that this is the time for investors to consider adding to their portfolio good projects at attractive prices and vice versa when the index is high. It signals that the market is extremely excited. That’s when investors should consider taking profits gradually. However this indicator will not work well in case of long term market analysis.
Does the Fear and Greed Index provide reliable insights into crypto futures prices?
If you are a long term investor then the greed and fear index will not be of much value to you. It could cause you to miss out on significant price increases in the future. On the other hand, this indicator is a valuable tool for a day trader to play different buy and sell positions for a short period of time.
How to balance greed and fear to become a successful trader
– Have a serious trading plan and minimal change.
– Refer to documents and regularly update market information to add more knowledge.
– Having your own opinion and perspective will help you avoid the influence of fear and greed.
DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.
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