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What Is the Fear and Greed index?


September 2022

If you trade crypto long enough, you will eventually come across the term “Crypto Fear and Greed Index.” This article will look at this useful tool, how to use it, and what it can mean for 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 many places to find the index online, but one of the most intuitive ones that follow crypto markets can be found at: https://cryptocurrencytracker.info/en/fear-and-greed-index. 

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

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

Top Cryptocurrencies with Price Predictions

# Crypto Prediction Accuracy CVIX Price 24h 7d Market Cap 7d price change
1 Bitcoin (BTC) BTC Bitcoin predictions 76.8% 42 $69 980.05 -0.89% 6.26% $1 376 321 554 485 BTC 7 days price change
2 Ethereum (ETH) ETH Ethereum predictions 76% 50 $3 542.04 -1.00% 1.71% $425 295 504 407 ETH 7 days price change
3 Tether (USDT) USDT Tether predictions 95.6% 1 $1.000055 0.05% -0.02% $104 510 072 326 USDT 7 days price change
4 Binance Coin (BNB) BNB Binance Coin predictions 60% 80 $608.95 3.26% 5.16% $91 059 509 830 BNB 7 days price change
5 Solana (SOL) SOL Solana predictions 61.6% 88 $186.01 -1.00% 4.93% $82 665 453 798 SOL 7 days price change
6 XRP (XRP) XRP XRP predictions 82.4% 28 $0.614771 -1.43% -2.36% $33 741 219 924 XRP 7 days price change
7 USD Coin (USDC) USDC USD Coin predictions 94% 2 $0.999937 -0.01% -0.03% $32 488 081 465 USDC 7 days price change
8 Dogecoin (DOGE) DOGE Dogecoin predictions 70% 66 $0.213182 5.48% 32.70% $30 626 599 420 DOGE 7 days price change
9 Cardano (ADA) ADA Cardano predictions 68.8% 66 $0.641810 -1.67% 0.99% $22 838 195 969 ADA 7 days price change
10 Avalanche (AVAX) AVAX Avalanche predictions 59.6% 87 $53.74 -2.07% -3.75% $20 280 952 532 AVAX 7 days price change
11 SHIBA INU (SHIB) SHIB SHIBA INU predictions 56.8% 94 $0.000031 -1.88% 11.16% $18 162 954 310 SHIB 7 days price change
12 Toncoin (TON) TON Toncoin predictions 61.6% 87 $4.88 -1.70% 10.03% $16 923 658 045 TON 7 days price change
13 Polkadot (DOT) DOT Polkadot predictions 75.2% 49 $9.47 -1.58% 2.49% $13 511 836 957 DOT 7 days price change
14 Bitcoin Cash (BCH) BCH Bitcoin Cash predictions 68% 58 $581.80 2.03% 42.09% $11 451 168 386 BCH 7 days price change
15 Chainlink (LINK) LINK Chainlink predictions 78% 42 $18.91 -2.89% 3.64% $11 099 137 470 LINK 7 days price change

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