[vc_row][vc_column][vc_column_text]In this article I will introduce you to the Fear and greed index, its background, where to find it, how to interpret and implement it in your trading strategy.
Many traders use technical and fundamental analysis. But they forget one last type of analysis: the sentimental one.
However, if you know a bit about the crypto-currency market, you will have noticed how emotionally based it is. Let’s take a concrete case: as soon as the market rises more and more investors, traders start to get greedy – and therefore buy more and more! On the other hand, when they see red on the graphs they panic and become sellers. In the end, knowing market psychology is just as important as knowing the basics of technical analysis or knowing the fundamentals of your investments.
As a reminder, let us quote Warren Buffet here about market psychology:
“Be fearful when others are greedy and greedy when others are fearful”
The “Fear and greed index” will help you to know the market sentiment. But first of all, let me remind you that your trading decisions can never be based solely on this indicator. This is a supplement that you can add to your initial strategy.
The “Fear and greed index” is available here.
Understanding this indicator is relatively simple:
– Extreme fear represents a possible buying opportunity.
– Too much greed represents a sell opportunity for investors, as a market correction can be expected.
The Fear and greed index calculates – as we will see later – the current sentiment of the Bitcoin market and creates a scale from 0 to 100. Zero means “Extreme Fear”, while 100 means “Extreme Greed”.
How are these values calculated?
The site gathers data from five different sources: volatility (25%) – volume (25%) – social networks (15%) – surveys (15%) – dominance (10%) – trend on Google (10%). Does that intrigue you? To find out more, feel free to go here and go to the lower section.
The use of this tool is complementary to your analysis/trading strategy. Please note that the score displayed on the site is updated every 24 hours. Thus, this indicator must be correlated with an analysis on a daily “timeframe”.
I hope you have learned something new,
Nico, 4C-trading analyst.
You can join us on Telegram for a follow-up of the market throughout the day.
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