Cryptocurrency Fear and Greed Index

Cryptocurrency Fear and Greed Index

Cryptocurrency Fear and Greed Index
It has already been said more than once that the cryptocurrency market is a market of emotions. All the main processes on it depend precisely on the mood of crypto-enthusiasts themselves. Accordingly, in order to effectively exist and earn in this environment, it is necessary to take into account those very emotional fluctuations. In this article, we will look at such a tool as the Fear and Greed Index of Cryptocurrencies and why it is needed.

• CRYPTOCURRENCY FEAR AND GREED INDEX: THE BASICS

The Fear and Greed Index for Cryptocurrencies is based on a combination of several analytical tools at once. When analyzing the market, it assesses 5 market factors at once:

Volatility (the volatility of a cryptocurrency's exchange rate over time).
Trading volume (the number of coins involved in transactions and trading).
Analyst research (analysis of assessments of various experts and analytical services).
Share of cryptocurrency capitalization in the market (the volume occupied by a particular coin in the total turnover of all cryptocurrencies).
Google Trends and Twitter (analysis of posts, queries, mentions of cryptocurrency by users).
For example, Thomson Reuters' crypto market sentiment tracking algorithm will be built on an artificial intelligence system and will be able to analyze 400 different factors at once.

• HOW DOES THE FEAR AND GREED INDEX FOR CRYPTOCURRENCIES WORK?

For the most part, the Fear and Greed Index readings are expressed in numerical values. Classic systems estimate sentiment in the range from 0 to 100. In it, 100 is extreme fear and 0 is extreme greed. So what can this give crypto traders?

First, this index will allow a more sober assessment of the situation. When a person knows that this or that mood prevails in the market, it is easier for him to confront his own emotions and trade effectively.

Second, the Fear and Greed Index of Cryptocurrencies is an excellent analytical tool to calculate entry and exit points. It works as follows:

Extreme Fear. It is an indicator that crypto investors are too worried about the market situation. Usually at such moments, one should buy coins, because they will soon start to rise.
Extreme Greed. In this case, on the contrary, investors, having seen a good rate, start to discount coins as soon as possible to get more profit. Accordingly, it is necessary to expect correction.
Thus, having understood the mood of the crowd, you can optimize your trading strategy, making it more effective and profitable.
 

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