What is The Fear and Greed Index In Cryptocurrencies and How to Interpret It
Fear and greed in the crypto world have a simple interpretation. According to many analysts, when fear is high, it could be an excellent time to buy, while when greed is high, it is a beautiful time to sell and liquidate positions.
The cryptocurrency market has a very emotional behaviour, that is so. People tend to get greedy when the market goes up and start selling everything when they see their crypto crashing. The fear and greed index seeks to avoid making emotional decisions.
However, this index not intended to function as a direct buy or sell signal but rather as a compass for investors in this market. It considers the price of the coin, its volatility, its volumes and dominance in the market, and the sentiment of social networks (Reddit and Twitter) and searches engines to establish some levels.
What does greed mean?
When the market is in extreme greed, the price rises because more and more people buy. However, investors take advantage of excessive greed to sell, following a basic investment principle of buying low and selling high.
Extreme greed is also an indicator for intelligent investors to know when the market is often oversaturated.
What does fear mean?
When the market is in extreme fear, the asset’s price is usually bearish, as investors often sell in panic. Savvy investors, however, can use the situation to their advantage by buying more of the asset when it at what known as discount prices.
You can also use extreme fear with the RSI (Relative Strength Index) to determine the best buying points in the event of a reversal. However, it is also not a clear indicator as the asset may remain bearish.
Market sentiment regarding cryptocurrencies or stocks is an essential tool that helps investors determine the consensus. This often helps dictate whether or not there will be any big moves. Whether the price is going to fall, how vital the asset is, and more, so it’s pretty interesting to consider.