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A Discourse on Crypto Fear and Greed Index: Using it the Profitable Way by tomlee

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· @tomlee ·
$1.91
A Discourse on Crypto Fear and Greed Index: Using it the Profitable Way
<div class ="text-justify">

The cryptocurrency market has been moving sideways for a while now. More so, it's been more of price declines than pumps. As you know, many factors contribute to this. Some of which include; the death cross earlier in January, several cryptocurrency ban news, the Federal reserve triggered FUD with the most recent being the war news/ rumours.

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The above does have some level of impact on the stock exchange and cryptocurrency markets. This is possible because, all of these factors contribute greatly to the **mindsets** of cryptocurrency traders and investors. 

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In turn, their actions and reactions are a result of their mindsets at a given time. Practically, there are two different mindsets traders can either have in the crypto market - **Fear and Greed!** 
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<img src="https://alternative.me/crypto/fear-and-greed-index.png" alt="Latest Crypto Fear & Greed Index" />

[source](alternative.me)
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#### Bitcoin Fear and Greed Index
Meaning, at a given point in the market, a trader is either greedy for more profits or fearful of the market outcome. 

However, I do think that another parameter should be added for those traders who are neither fearful nor greedy. I think we have investors that are always stable in their mindsets regardless of FUD or social hype. 
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>***If you agree with me on this point, what should this third parameter be called?***
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In furtherance, about these two standard parameters (fear and greed), a numerical scale has been designed to show the state (dominant emotions) of the crypto market daily. This numerical scale is named the Bitcoin Fear & Greed Index. 
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Hence, the bitcoin fear and greed index was developed to measure two of the primary emotions that influence investors. The ideation is based on the hypothesis that excessive fear can result in cryptocurrency assets trading well below their intrinsic values. Equally, it is believed that excessive greed can cause the market to have a bullish tendency.
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#### Interpretation of the Fear and Greed Index

Usually, the numerical scale reads from **0 to 100.** 

- **0-24** means that there's an **extreme fear** in the market. This shows that there will be huge sell-offs in the market and as a result, prices will plummet. Extreme fear indicates that traders are worried about the market's outcome. 
- **25-46** indicates "fear"
- **47-54** indicates neutrality. Meaning that investors are neither fearful nor greedy. 
- **55-74** indicates 'greed' 
- **75-100** means that there is **extreme greed** in the crypto market. In turn, traders might over-price assets which will result in a price increase. In other words, extreme fear shows that investors always become very greedy when the market pumps leading to fear of missing out (FOMO}. 
____

#### Key Factors
However, in order to arrive at any number on the meter at any given time, about 5 factors are being considered and analyzed. This serves as the data source for the index designed by [Alternative.me](Alternative.me). 

**Volatility:** It is believed that an unusual rise in volatility is a sign of a fearful market. The rate of volatility in the market can be used to tell when investors are fearful or greedy. 

**Market Momentum/ Volume:** Here, when the buy volumes in the market are high, it is an indication that investors are bullish hence, greed becomes the market sentiments. High sell volume may indicate fear and a bearish trend. 

**Social Media:** This is another factor considered to ascertain the dominant emotion in the market. If everyone begins talking about bitcoin suddenly to the point that Bitcoin hashtags begin to trend. It means one thing, greed, and a bullish market. 

**Market Dominance:** Increase in Bitcoin dominance shows investors are fearful on alternative coins. Whereas decrease in bitcoin dominance shows investors are interested in alt's investment. 

**Trend:** Alternative.me equally uses Google trend data to know if the investors are either fearful or greedy. 

A thorough analysis of these factors aids in telling the emotions of traders using the scale. 
_____


![stock-market-6693060__480.webp.jpg](https://files.peakd.com/file/peakd-hive/tomlee/23wzxVFKNQvTaiZ4WQStvd1gnLUxQx2sSAraCgFZXwLs1jXTPC3MQuuF3pU4WGGESBXtW.jpg)
[source](https://pixabay.com/photos/stock-market-chart-phone-stocks-6693060/)
___

#### Using the Fear and Greed Index To Your Advantage

Normally, extreme fear or fear indicates price declines and majority will naturally panic sell. But as a smart investor, extreme fear in the market should tell you that it is the right time to accumulate. 

Similarly, extreme greed should tell that the market is due for a correction. Hence, instead of FOMO, take profit and exit the market. 
_____

#### In Summary 
People tend to get greedy when prices are pumping which results in FOMO. Also, people often sell their coins in irrational reactions to seeing red numbers. However, experienced investors act in the opposite direction which is the most profitable way to use the fear and greed index. In the words of Warren Buffet, be fearful when others are greedy and be greedy when others are fearful. 

</div>

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