HFM information and reviews
HFM
96%
FXCC information and reviews
FXCC
92%
FxPro information and reviews
FxPro
89%
FBS information and reviews
FBS
88%
Vantage information and reviews
Vantage
85%
XM information and reviews
XM
82%

What is the Bitcoin Fear and Greed Index?


As a cryptocurrency trader, you will eventually encounter the “Crypto Fear and Greed Index.” This article explores this valuable tool, provides insights on how to utilize it, and outlines its significance to your cryptocurrency investments. The original “Fear and Greed Index” was formed by CNNMoney to gauge investor sentiment in the stock market. The index is measured daily, weekly, monthly, and yearly. The idea is that investors can decide whether or not a stock market is priced correctly. Excessive fear drives down prices, while greed tends to have the opposite effect. 

How the Fear and Greed Index Works 

To understand how to use the Crypto Fear and Greed Index, you need to know how the original one works, as it is simply an extension of that indicator. It is used as a way for investors to gauge the market. This indicator is based on the idea that stocks tend to trade far below their intrinsic value when there is excessive fear, while they will trade far above their intrinsic value when there’s unbridled greed. 

How is the Crypto Fear and Greed Index Calculated? 

As the crypto markets mature, it makes sense that they started using some more traditional tools. Understanding the psychology of the market goes a long way in determining whether the market is in a sustainable move or if things have been “overdone.” In a market like crypto, this can be especially useful as the momentum can be so strong.  When calculating the Crypto Greed and Fear index, there will be different inputs as it is an entirely different market. The following information is used to come up with the calculation: 

How Do You Read the Crypto Fear and Greed Index? 

The Crypto Fear and Greed Index is straightforward. It’s a numerical value between 0 and 100, with zero being the most fearful end of the spectrum and 100 being the most greedy. Think of the 50 level as being “balanced.” If the market has a reading below 50, it could mean that the market might be undervalued and ready for an upswing. On the other hand, if the reading is above 50, the market is experiencing greed, and it could be overvalued and ready for a pullback. 

That being said, a reading of 52 is not extremely greedy. However, a reading of 93 would be. For fear scores, 48 is not important, but a fear score of 2 should get your attention.

There are a lot of advantages to using the Crypto Fear and Greed index. Some of the major ones include: 

What Are the Disadvantages of The Crypto Fear and Greed Index? 

While the Crypto Fear and Greed Index can be helpful, nothing is perfect. There are a few things to keep in the back of your mind when using this tool, including: 

How to Use the Fear and Greed Index When Trading 

There are multitudes of ways traders can use this index, but one of the most common ways is to allocate your trading capital based on how the market is trending and when perceived “value” may be entering the market. For example, Bitcoin could be in a downtrend, and the Crypto Fear and Greed Index could be in an extremely low reading. If you are an investor, at this point, you may be looking to buy a bit more, with the understanding that the index itself does not guarantee a bounce, but it suggests that perhaps the selloff is a bit “overdone.” Furthermore, if you are a short-term trader, you may play the bounce more aggressively, assuming you have a technical or fundamental setup. 

Beyond that, traders will often use this indicator to tell them when to take profits or perhaps simply go from crypto to cash. If you see that the markets are trending down and the index is starting to drift lower, it may be time to close out positions and go to cash, waiting for a more suitable market to be involved in. 

Is the Fear and Greed Index Reliable?

The Fear and Greed Index can be reliable depending on your timeframe. Over the short term, it’s often observed that if the market leans too far in one direction, it will act as a pendulum and go on the other. For example, if we see a very bearish market with extreme fear built into it, a swing in the other direction could be coming soon. If you are a longer-term investor, it may not be as reliable or potentially significant. The index will  be much more helpful if you are more short-term focused. 

The Fear and Greed Index is a technical indicator, so you should keep in mind that it does not consider any fundamental factors in its final calculation. If you invest in crypto based on a macroeconomic outlook, the index may be irrelevant to you.

Conclusion 

Ultimately, the index should be thought of as confirmation of existing technical or fundamental analysis.You cannot trade based upon this index alone, as it is not easy to quantify. The market will likely reverse if things get overextended in either direction. There’s no reason to ignore the index, as it is easily found on various websites. That being said, if you find that you are in a position that has moved significantly, it does not hurt to check it. There are multiple versions of the Crypto Greed and Fear Index out there, so if you are a swing trader, you can buy and sell your CFDs if the market swings too far in one direction, allowing you to maximize potential profits. 

FAQ: Frequently Asked Questions

#source


RELATED

MetaTrader 4. Advanced Features

As people are becoming more dependent on electronic devices, many forex brokers now offer applications to support MT4 on mobile devices. The functionality of the MT4 application is similar to that of the desktop version...

Secrets of trading by Fibonacci levels

It is difficult to find a trader, even among newbies, who have never heard of Bill Williams - the developer of effective indicators integrated into almost every...

How to Amplify Earning With Margin Trading?

Leverage is the practice of using an amount of debt or borrowed capital to take a position in an investment, finance a project, or fund a business and...

How to Short Ethereum?

Want to profit from falling prices in ETH? Then you’re in the right place. In the following article, we’ll explain what shorting means, how to short Ethereum, and how you can profit...

Most Trending Currency Pairs in 2022

Are you one of the many beginners in online trading who are struggling to understand even the basics of the markets? Don’t worry, we know the feeling. One of the most common reasons why people hesitate to start trading...

Different ways of investing in gold in these modern times

Gold is a bright, yellow, malleable and ductile metal found in nature. It is usually found in rock veins, gold nuggets, grains, electrum or alluvial gold...

Is Ripple a good investment and can you profit on XRP in 2020?

Cryptocurrency trading has become a big business and is extremely popular for people just entering into the trading space, as well as for major institutional traders...

Blockchain Beyond Cryptocurrencies

Blockchain has become one of the most influential technologies after being one of the key elements supporting digital currencies. It is the technology...

Where will the COVID-19 pandemic lead the United States?

Last week, US government debt set a new historical maximum. The milestone of $25 trillion was taken. The situation deteriorated sharply in April 2020 due...

Day Trading While Maintaining a 9-5 Job: Strategies, Considerations, and Balancing Act

The world of day trading, with its tantalizing potential for financial gain, has become increasingly accessible even to those who hold down conventional 9-5 jobs...

Wrapped Bitcoin and relationship with Ethereum explained

The cryptocurrency industry and both the Bitcoin and Ethereum ecosystems are rapidly evolving, and have come to the point of converging together as Wrapped Bitcoin (WBTC)...

Interest rates: why do they matter so much?

There is nothing new about it. You’ve heard about it. We’ve heard about it. The Federal Reserve, the European Central Bank, the Bank of England, the Bank...

What Are Bitcoin Options? Bitcoin Options Vs Bitcoin CFDs

Everywhere you turn in financial sector, the focus is on Bitcoin and cryptocurrencies. Businesses are now adopting blockchain or supporting digital currency for payments...

COVID-19: Crisis in the global economy

The economic crisis is one of the persistent phraseological units, familiar to hearing and understandable to a wide circle of readers. History remembers many crises...

Synthetic and Crypto Currency: What Are They, How to Create and Use Them

The set of trading tools that NordFX offers to its clients is a whole arsenal that allows a trader to apply the most effective strategies and win on the fields...

Pair Trading: Effective Strategies

Pair trading is used by experienced traders as a reliable tool for risk diversification. For the successful implementation of a long-term trading...

All you need to know about cryptocurrency

The market of cryptocurrency is based on supply and demand; thus, it fluctuates widely. For instance, Bitcoin has experienced rapid spikes in December 2017 at $20K...

Olymp Trade: What a Crypto Investor Needs to Know in 2022

The year 2021 was a tremendous success for the cryptocurrency market. Bitcoin hit an all-time high as did nearly all altcoins. However, 2022 started with a big price drop...

Security Tokens Versus Utility Tokens: Which Is Better?

The cryptocurrency industry is vast and diverse. There are DeFi tokens, non-fungible tokens (NFTs), Bitcoin, altcoins, and much more. The categories of crypto assets...

How "Stable" Really Are Stablecoins?

Over the past month, some major stablecoins completely lost their peg with the U.S. Dollar, raising concerns amongst investors about their safety. Stablecoins are designed...

FP Markets information and reviews
FP Markets
81%
IronFX information and reviews
IronFX
77%
T4Trade information and reviews
T4Trade
76%
Exness information and reviews
Exness
76%
Just2Trade information and reviews
Just2Trade
76%
FXNovus information and reviews
FXNovus
75%

© 2006-2025 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.