What is the Fear & Greed Index? The Complete Collection of Greed and
- 1. What is the Fear & Greed Index?
- 2. Meaning of Fear & Greed Index
- 3. How to Read the Fear & Greed Index
- 4. Factors that make up the Fear & Greed Index
- 5. Fear & Greed Index Accuracy
- 6. How much does the Fear & Greed Index reach to adjust?
- 7. How should the Fear & Greed indicator be used in the crypto market?
- 8. How to balance Fear & Greed psychology when trading?
What is Fear & Greed Index? Fear & Greed Index, or greed and fear index, is one of the critical factors that help investors accurately judge the direction of market movements. So how to read and understand the meaning of this indicator to have an overview of the current financial market? Follow the article below of BHO Network to find the right answer!
1. What is the Fear & Greed Index?
Fear & Greed Index is the greed and fear index. This is an indicator that many people are interested in knowing how the market sentiment is. Based on the indicator, you can tell whether the market is moving toward greed or fear. Through that, you can come up with a suitable trading strategy at each time.
The fear & Greed Index was invented by CNNMoney to analyse the mainstream stock market and is used in the cryptocurrency market. Then, based on the version in the cryptocurrency market, Alternative.me came up with similar performance.
Fear and Greed Index is used to assess market sentiment
2. Meaning of Fear & Greed Index
According to common sense, investors are often greedy, so they fear missing out (FOMO) when the market price increases. On the other hand, they will sell less assets out of fear when the market tends to fall. It can be theoretically explained as follows:
- Fear shows that they are worried, then they can buy.
- And when they are greedy, that means there may be a correction in the market. Here is an example of sentiment analysis of the Bitcoin market. The stat ranges from 0 (extreme fear) to 100 (excessive greed).
Bitcoin Market Fear and Greed Index
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3. How to Read the Fear & Greed Index
First of all, people visit the Web: https://alternative.me/crypto/fear-and-greed-index.
Scroll down until you see a Chart like this:
How to read the Fear & Greed Index
In order from left to right:
- Figure 1: Psychometric chart.
- Figure 2: The sentiment index values of the present, yesterday, last week and last month.
- Figure 3: Time to update the next sentiment indicator.
The Fear & Greed index has a value from 0 to 100.
- 0 - 49: Shows fear (Fear).
- 51 - 100: Show greed (Greed).
- 50: Indicates that the market is neutral.
In addition, there is a division as follows:
- 0 - 24: Express extreme fear through orange.
- 25 - 49: Express fear through yellow.
- 50 - 74: Show greed through light blue.
- 75 - 100: Show extreme greed through the color green.
Fear means that most of the market value is down, and investors are inclined to sell everything. Besides, greed denotes that people tend to buy everything, then the market value increases daily.
4. Factors that make up the Fear & Greed Index
To create the Fear & Greed index, Alternative.me has integrated 6 indicators:
- Volatility (25%): The index is determined by comparing levels the current price movement and the maximum possible decline in BTC price with the previous 30-day and 90-day averages, respectively.
- Market Momentum/Volume (25%): Measured by combining BTC's current momentum and volume. Then compare with the average of the previous 30 and 90 days.
- Media (15%): Currently, this indicator is only applied on Twitter.
- Dominance (10%): Defined as the percentage of BTC on the total cryptocurrency market capitalization.
- Trend (10%): Relyon the Google Trends feature to determine the number of searches, then process those metrics.
- Survey (15%): Temporary stop working, it use Strawpoll.com to scout the market.
Factors that make up the Fear And Greed Index
5. Fear & Greed Index Accuracy
The greed and fear index is quite accurate. However, to have a final decision in trading, analysts often combine sentiment indicators with chart analysis, On-chain data of ETH, and BTC.
However, this sentiment indicator is only suitable for long-term investors because updates are very slow and only indicate the overall situation. In other words, this indicator is not suitable and necessary for short-term players (within days or days).
In addition, knowing that the market will correct sharply when the index shows greed, it does not mention specific data. That is, Traders will not be able to predict the time of market correction through this indicator.
In addition, for the Bull or Bear market, we can see that the index is trending in a particular direction. However, that does not mean that the market completely reversed order. It could be just a small swing to a more stable major trend behind.
Fear and Greed Index has fairly high accuracy
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6. How much does the Fear & Greed Index reach to adjust?
According to the analysis in Section 5, it may not be easy for investors to predict when the market will correct when using this indicator.
7. How should the Fear & Greed indicator be used in the crypto market?
In the crypto market, the greed and fear indicator is only suitable for traders who play in the short term. Because, when used in long-term investments, Traders may ignore significant bull markets. At the same time, short-term investors can use this index to rotate capital.
It is also essential to note that this indicator is only suitable for technical traders, not basic traders.
The greed and fear indicator suitable for short-term investors
8. How to balance Fear & Greed psychology when trading?
Some suggestions for balancing greed and fear when trading:
- Having a specific plan will help you overcome the effects of extreme fear and extreme greed. At the same time, a detailed strategy can help traders avoid haste and emotion in trading.
- Reduce transaction size to stabilize psychology.
- Make notes of trading activities to identify the advantages and disadvantages before trading.
- Learn selectively from other successful Traders.
- Mental stability to make the right decision.
- Gain more knowledge through relevant transaction reports and documents.
Psychological stability is always important when trading
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Hopefully, the article What is Fear & Greed Index of BHO Network will help readers better understand this indicator and apply it in practical trading. However, traders should incorporate more indicators and other data to make an informed decision to analyse the trading market. See you again in the following article on the site.
Published on July 18, 2022
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