The fear and Greed Index is an indicator developed to measure investors’ sentiments toward market reactions.
The cryptocurrency market is highly volatile in which people will initiate buy and sell actions based on the fewer market movement. So, the fear and greed index help to identify the investor’s reaction.
The fear index is measured on a 0–100 scale. It is calculated into four levels based on the number.
0–24 — Extreme fear: Orange color
25–49 — Fear — Yellow
50–74 — Greed — Light green
75 -100 — Extreme greed — Green
Extreme fear indicates negative sentiments in the market, whereas Extreme greed indicates huge positive sentiments.
Fear and Index are calculated using multiple data sources to get a single number.
Five key indicators are:-
Market volatility: Increased volatility indicate a fearful market.
Market volume and momentum: When the buying volume increases faster than market momentum, it is denoted as extreme greedy
Social media: High social media interaction shows a greedy market
Dominance: When the Bitcoin buying trend is high compared to altcoins, it is a fearful market moving to safer assets.
Trends: Google search trends about Bitcoinsprediction are considered a bullish market signal.
How can you utilize the fear and greed index for investing?
When traders are extremely feared, prices are low and considered a buying opportunity. Since it heavily depends on the ongoing market trends Fear and Greed index is a short-term indicator.
Market experts believe we should be fearful when others are greedy and vice versa. Also, checking the fear and greed indicator helps to get an idea of market sentiments.