Fear and Greed Index

What is the Fear and Greed Index?

The Fear and Greed Index is one of the many indicators used in the trying to determine the future price movement of an asset (bitcoin, stocks…). The index was originally created by CNNMoney to followed the two main emotions of investors in the stock market, fear and greed. The idea behind the index is as follows, if there is too much greed on the market, and thus euphoria, people are more inclined to buy shares without first explorations. This leads to an irrational increase in price, and it is often the time when smart investors, who bought at lower prices, they decide to sell their positions in order to make a profit, because they believe Irrational growth can’t continue for long. On the other hand when fear is visible in the market, average investors are not inclined to buy with given that they feel that the price is likely to go down. This is A time when smart investors get back into the game and buy record low prices. The latest example showing the accuracy of this the indicator is the fear that existed while bitcoin was trading on the price of about $16,000, and now, after the growth, the indicator shows A gradual transition to greed. If you are interested in watching this indicator in the crypto market, you can do it on the next link.

How does the Fear and Greed Index work?

As we have previously determined, the Fear and Greed Index is trying to determine the movement of the price of an asset based on the emotions that Investors are on the market. The value of this index varies between 100 and 0, where higher values indicate more greed, while lower values They point to fear and lack of investor optimism. Some of the factors which are observed when calculating the index values are volatility and market momentum. Here large fluctuations in price upwards indicate greed, while large downward fluctuations indicate fear Investors. However, the two most important indicators are the mood of people on Social media and Google Trends. If the investors are too optimistic and confident in price growth, and Google trends suggest great interest in cryptocurrencies, the index will show extreme greed. On the contrary, if there is a shortage of interest and investors on social networks show uncertainty, the index will show the values of extreme fear. The combination of all the above factors is used in the index value, and it is updated every twenty-five four hours. Alternative.me uses the following indicators in its The value of the index:
  • Market volatility over the last 30 and 90 days (25%)
  • Market momentum and volume (25%)
  • Social media (15%)
  • Surveys (15%)
  • The dominance of bitcoin in the cryptocurrency market (10%)
  • Google Trends (10%)

How to use Fear and Greed Index?

Fear and Greed Index, combined with other indicators, can It’s great to help you determine when it’s time to enter, and when to exit the market. Simply when greed is on record highs you should consider selling, with on the other hand, when the market is ruled by fear and lack of optimism maybe it’s time to slowly enter the market. It is important to note that it is not recommended to invest only on the index, but to make it should be used in combination with other indicators and news about the general economic situation in the world.

Disadvantages of the Fear and Greed Index

Skeptics of this indicator often state that the value of the index it varies too much from day to day, and for these reasons it is impossible to use it when investing. Another argument against the index is that for Most investors have the best buying and holding strategy. Against this, the index encourages frequent entry and exit from the market, and historically this leads to lower returns on investment.

Conclusion

Fear and Greed Index combined with technical and fundamental analysis, and news about the market, can serve us well in determining the next move of the market. I learned how to index. it works and how to best use it to your advantage, and which are index shortcomings. We have concluded that the index is necessary use in combination with other indicators and have a long-term plan. If you are considered a more experienced investor the index can additionally help increase returns on investment, but if you consider yourself You’re just learning the basics of technical and fundamental skill. Analysis, investment and holding strategy is probably better for you. Be sure to share with us on social networks (Instagram, Twitter) Have you ever seen fear and greed index? You’ve been useful.