Market players, novice or professional, aware or not of the psychology to adapt in this field, are all more or less driven by their emotions. In the cryptomarket, these emotions are duplicated due to its high volatility. Interesting opportunities can be found when going against the stream. Buy the fear and sell the greed. This is how financial markets work. When the majority sells in panik, it offers opportunities for the lucid.
The Fear & Greed Index is a sentimental indicator enabling to probe the general psychological state. Limited from 0 to 100, it is closely observed by the cryptosphere and highly influences decision making.
We can divide the values in 4 sections:
- Extreme Fear (0 to 25): general panic, buying opportunities.
- Fear (25 to 50): the majority is scared, buying opportunities.
- Greed (50 to 75): the majority gets greedy, selling opportunities.
- Extreme Greed (75 to 100): total euphoria, selling opportunities.
This Bitcoin Index is calculated daily with those 6 indicators:
- The dominance (10%): a decrease of the Bitcoin dominance over the altcoins accentuates the cupidity and vice versa.
- Surveys (15%): weekly surveys on strawpoll.com.
- Social Medias (15%): # and posts analysis about Bitcoin.
- Google Trends (10%): analysis about searches linked to Bitcoin.
- Volatility (25%): daily volatility compared to the 30 and 90 days average.
- Volume (25%): daily volume compared to the 30 and 90 days average.
The Fear & Greed Index, vastly used, obviously has to be coupled with other indicators to give real signals allowing to effectively take actions.