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Fear And Greed Index: How It Tracks Crypto?

Since it’s almost Halloween it would be a crime not to talk about fear and greed index. Sounds spooky, right? In this article we’ll find out what it is and how to use it.

What’s index?

If you are interested in the cryptocurrency industry, then you have probably come across the word “index” more than once. The topic can be tricky — especially for beginners. What does this term mean in Crypto World?

Market indexes are platforms that transmit objective data on prices and capitalization of different cryptocurrencies. You need an index of cryptocurrencies to understand the value of some assets. Usually an index allows you to analyze several factors. Such us:

  • Market prices at the moment.
  • The total amount of coins.
  • Daily volumes.

However, different platforms provide different information depending on their user base. If, for example, the index is focused on traders, then it can display the maximum and minimum price of a coin over the past 24 hours. At the same time, another platform, developed for long-term investors, may cover the specific characteristics of the coin.

Is F&G index a real thing?

Warren Buffett once said that it is wise for investors to be “fearful when others are greedy, and greedy when others are fearful.” It’s a nice piece of advice, but how could we know exactly when we should be one or another? CNNMoney developed a solution — fear and greed index. It keeps track of two main feelings that guide investors on the market. Index helps to understand if prices are fair. The idea behind it is quite simple, developers assume that strong fear is the reason why assets become cheaper than they should be. As well as strong greed raises prices too high.

How does the F&G Index work?

Fear and greed index vary from 0 to 100, where low number indicates that there’s fear on the market, and high number signals about greediness. So, obviously 50 is a middle-ground, 0–24 is a medium fear, extreme is between 25–49. The same goes about greed — from 51 to 74 is medium and 75–100 is extreme.

Why is it a good idea to monitor fear and greed index? When it signals about extreme fear it means that prices on assets are going down because traders are selling their crypto. That is a good opportunity to buy something. And it works the other way around — it might be a good idea to sell your assets while extreme greed is on the market. That way you may get more profit.

Where does the data come from?

What data does fear and greed index take into consideration? Let’s find out!

#1 Volatility

It is one of the main factors that affects Index (takes up 25%). Developers monitor Bitcoin price and compare it with 30-day and 90-day data. Rapid volatility indicates signals of fear on the market.

#2 Market momentum and volume

One more important factor which accounts for 25% of the index. It compares current BTC trading volume with 30-day and 90-day data. High buying tells about a greedy market.

#3 Social media

15% of research comes from social media. Index analises Twitter posts with coin hashtags. The more posts are published, the more greedy the market is.

#4 Dominance

It takes 10% of the Index. This factor indicates a change in the share of Bitcoin in the total capacity of the market. High dominance shows that there is fear on the market.

#5 Trends

This factor is in charge for 10%. It uses Google Trend data.

Also, not so long ago the F&G index was using surveys in its studies but currently this way of research is on pause, according to the web site.

Conclusion

F&G index helps to track changes in the traders’ feelings in the market. Low values indicate the price on crypto assets is falling down and high values mean an increase in prices at the moment. With it you can understand when the market is overheating, so you can manage to sell or buy assets in good time.

The F&G index is best suited for day trading. Crypto enthusiasts don’t recommend using it for long-term investments. This indicator analyzes only the current mood of market participants. Note, that technical and fundamental analyses do not depend on the emotions of traders and are more suitable for long-term forecasts.

Don’t forget that professional traders never use only one indicator. For a more reliable picture, it is better to take into consideration several surveys and parameters at once.

SimpleSwap is wishing you to have a fun and spooky Halloween! Subscribe to our Twitter account — next week you’ll find there many posts regarding Halloween and even a giveaway!

Don’t forget, the easiest way to buy or exchange coins is to use SimpleSwap services.

SimpleSwap reminds you that this article is provided for informational purposes only and does not provide investment advice. All purchases and cryptocurrency investments are your own responsibility. Originally published on Publish0x blog.

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