Fear and Greed Index: the tool to measure the sentiments of the crypto market

read between the liness – Some traders and investors use the fear and greed Index to anticipate crypto market trends. Le Journal du Coin today offers its readers an article that will allow them to quickly discover the essentials of a tool which they could use, or on the contrary reject if they consider it irrelevant or unreliable.

What is the Fear and Greed index?

The Fear and Greed index is an indicator that tries to measure market sentiment. Traders and investors who use it start fromhypothesis according to which, when the fear dominates the markets, the price of a cryptocurrency like the Bitcoin (BTC) will then tend to to lower. Conversely, greed or greed (Greed) dominant on the markets, would be beneficial during of a cryptocurrency.

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Measurement and interpretation of the indicator

The Fear and Greed index is calculated on the basis of various data from different sources, including the volatility comparing the average value of a cryptocurrency over the last 30 and the last 90 days, the volumes traded over these periods, or the sentiment on social mediaetc.

Sites like Lookintobitcoin.com provide daily, the value of the indicator. They thus provide an overview of the prevailing sentiments in the markets.

The indicator values ​​are interpreted on the basis of this reading grid :

  • 0 to 24 = Extreme fear,
  • 25 to 49 = Fear,
  • 50 to 74 = greed,
  • 75 to 100 = extreme greed.

Fear and Greed Index and Trading Strategies

Data from Lookintobitcoin.com shows that the Fear and Greed Index allows for example to anticipate Bitcoin’s local highs and lows. The degree of reliability is then relatively satisfactory.

Instead of opening or closing positions based on expected trendssome traders and investors could nevertheless, choose to bet against the tide : sell when sentiment tends much more towards greed, and buy when fear dominates.

Market sentiment: the limits of the indicator

The Fear and Greed Index may help to anticipate trends. However, it does not allow not to determine the precise levels significant local highs or lows.

A misjudgment of timing about a bullish or bearish reversal, or an erroneous assessment of the duration and magnitude of a future rise or fall, can thus penalize traders or reckless investors.

The Fear and Greed Index is not neither a magic wand nor a precise map fluctuations in a cryptocurrency. One could, at most, compare the indicator to a compass.

Follow the daily Bitcoin report published at the end of the evening or subscribe to the Journal du Coin newsletter, to discoverother essential indicators used daily by professional traders and analysts, or by simple enthusiasts, to analyze the price of BTC.

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