23 March 2022 | ZebPay Trade-Desk
There are a lot of tools available starting from technical like RSI, resistance and support levels to the fundamental factors regarding market and the asset but it’s hard nonetheless to anticipate the future moments of the asset with 100% surety but Fear and Greed Index have joined the league to help anticipate some of it.
The Crypto Fear and Greed Index generates a single value between one and one hundred. If the worth = 1, it means the cryptocurrency market can fall as people experience intense worry and sell their holdings. On the opposite hand, a range on top of 100 means that the market is due for a correction and folks are experiencing excessive greed (i.e. they’re shopping for additional tokens). Extreme fear happens once the index value is between 0 and twenty four. something above 24 and below 50 represents fear and a worth of fifty signifies neutrality within the market. Conversely, greed occurs when the index price is between fifty one and 74; however, if the value increases past 74, akin to seventy five or beyond, then it represents extreme greed.
Emotions certainly are a key factor driving the digital currency market. When the prices of assets increase in the market, people tend to become greedy resulting in something we all familiar with called FOMO) which basically means fear of missing out. Also red numbers creates panic among people and they frequently sell their coins In an impulsive way.
Various Crypto Fear and Greed Index signals that influence the behaviour of traders and investors include trends, polls, market dynamics, market dominance, social media, and Google’s market volatility. To determine the trend of greed in the market, examine popular search phrases. For example, a large number of Bitcoin-related searches will lead to a high degree of investor greed..This element speaks for 10% of the value of the index. Historically, the increase in Bitcoin-specific Google searches have been linked to extreme crypto asset price volatility.
To calculate the number each day, the Bitcoin Fear and Greed Index takes into account other factors, such as polls, which account for 15% of the index value. Participant surveys of more than 2,000 people increase the value of the index, indicating the presence of avid investors.
Market momentum is basically the market’s capacity to maintain a long-term price trend and it constitutes 25% of the index value. This inspects the direction and health of the market. The greed part of the index describes the momentum. Dominance basically inspects crypto assetmarket dominance over the crypto asset industry. For example, the greater the dominance of BTC, there exists lesser alternative altcoins. However, a fall in BTC dominance indicates increasing greed and constitutes 10% of the index.
There is no surprise that social media has a 15% influence on the index, as it is currently a bigger part of our lives. At the edge of the spectrum on the greed side, features such as hashtags, engagement, themes, and quotes on different social media happen to be networks. Almost 25% of the index communicates to market volatility. Market volatility can be deciphered by inspecting the current price of a digital currency (like the price of Bitcoin) and by comparing it to latest price movements over the past 30-90 days. In the index, volatility is referred to as a measure of fear.
Using the index as a trend criterion helps the inventors to invest in digital currency wisely. For example, when the numbers of the Fear and Greed index is small, it could indicate that the price of the crypto will rise and one can plan whether to buy, sell or just hold. Most of the time, increasing prices mean it’s a great time to sell. However, when the index value is on the bigger side, it could imply that the price of the crypto will soon fall and it is actually a nice time to buy. Hence, crypto asset sentiments guide when a price increases or touches the bottom.
When the index sets foot in the acute anxiety zone, it tends to reverse. This is where fear pivots into the first signs of greed before becoming full-blown greed. Crypto asset Fear and Greed Index assist monitor changes in line with market sentiment. For example, large oscillations in the market provide a chance to get in or out before the rest of the market follows suit. The index is not a good measure for long-term analysis of digital currency market epochs. However, swing traders will have good profits from this market movement. Swing trading is basically a strategy where the investors buy or hold the assets to have an upper hand in anticipation of the movements of the market.
The Fear and Greed Index is based on sentiment analysis; Technical and fundamental analysis are unchanged by the emotions of market participants and hence are often used as the methods for predicting market movements. As a long-term investor if one makes decisions based on the Crypto Fear and Greed Index, one might miss out on significant price rise. The Fear and Greed index is a great and essential tool for a day trader who acts differently to buy and sell positions in a short time.
If one is a fundamental trader and willing to utilise the Fear and Greed Index to help investment decisions; therefore, you risk losing your money as the index is suitable for technical traders. Although the Fear and Greed Index provides insight into the state of the cryptocurrency market at the exact moment it is retracting, individual traders or investors should do their research on which instruments are suitable for their investment goals.
Reducing your trading size, having a trading plan, recording a trading journal, and learning from others will save you from the influence of extreme fear or extreme greed. Price fluctuations are less noticeable on large (or large) trades, which makes large trades more stressful. Therefore, reducing your trade size is vital to balance your emotions and trading decisions. Having a clear trading plan is the key to being a successful trader. Without a plan, you risk losing money due to overmining your cryptocurrency wallet. Recording your trading activities to understand what works for you or vice versa helps you make rational decisions. The trading journal helps you learn from your own mistakes, and yes, practice makes perfect!
It is essential to analyse the business activities recorded in a journal to eliminate the irrelevant and refine the productive. Keep your emotions aside while doing this if you want to be a successful trader. Learn from your peers or successful investors like Warren Buffet.But make sure to avoid the herd strategy as it will affect your emotions and you may lose your money. You can also read reports published by credible sources such as our blogs or PayPal to improve your knowledge about the market.
Disclaimer: This report is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any investor. All investors should consider such factors in consultation with a professional advisor of their choosing when deciding if an investment is appropriate. The Company has prepared this report based on information available to it, including information derived from public sources that have not been independently verified. No representation or warranty, express or implied, is provided in relation to the fairness, accuracy, correctness, completeness or reliability of the information, opinions or conclusions expressed herein. This report is preliminary and subject to change; the Company undertakes no obligation to update or revise the reports to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events. Trading & Investments in cryptocurrencies viz. Bitcoin, Bitcoin Cash, Ethereum etc.are very speculative and are subject to market risks. The analysis by the Author is for informational purposes only and should not be treated as investment advice.