Fear and Greed are the two human emotions driving financial markets. According to Warren Buffet a successful investor must "be fearful when others are greedy and greedy when others are fearful." Overall market sentiment can be a great indicator for Bitcoin investors if you know how or where to read it.
One great tool that I use to gage the current and passed crypto market sentiment is the Crypto Fear and Greed Index, by Alternative.me. The Crypto Fear and Greed Index is a trusted web site used by credible news sources such as Forbes and Cointelegraph. Many refer to the Crypto Fear and Greed Index to measure the general market sentiment towards Bitcoin.
Let's Check Today's Market Sentiment
How to read the meter score: 0 means "Extreme Fear" while 100 means "Extreme Greed"
Why it is important to measure Fear and Greed according to Fear and Greed Index:
"The crypto market behavior is very emotional. People tend to get greedy when the market is rising which results in FOMO (Fear of missing out). Also, people often sell their coins in irrational reaction of seeing red numbers. With our Fear and Greed Index, we try to save you from your own emotional overreactions. There are two simple assumptions:
- Extreme fear can be a sign that investors are too worried. That could be a buying opportunity.
- When Investors are getting too greedy, that means the market is due for a correction."
How often does the index gets the score updated?
The site updates the Fear and Greed Index score every 24 hours and showcases a timer for the next update. A feature that is very important when reading the daily score, specially on high volatility days of Bitcoin as investors must check measurement and price and time of measurement to get a better sense of accuracy.
Does it offer historical data?
The site also show cases passed scores as far as 2 years, which are great to be used for reference and research.
What data sources does it use to come up with the score?
Crypto Fear and Greed index uses a many data sources and crunch them all into one score. The score is build upon 6 meaningful data points with different levels of significance. Here is the 6 data points used and the percentage they weight in the score.
1. Volatility 25%
2. Market Momentum/ Volume 25%
3. Social Media 15%
4. Surveys 15%
5. Dominance 10%
6. Trends 10%
Each explained in more detail on the Alternative.me web site
In conclusion, I often visit Fear and Greed Index not only to understand and measure the market sentiment but also get a clear understanding of my own. Before an impulse buy or sell I tend to stop a little and analyze the market from various points of view and the Fear and Greed Index is just one of the many tools I use. It is important to know that The Fear and Greed Index is not financial advice, it is simply a tool that measuring passed data. Nobody has a crystal ball and investing in cryptocurrencies is quite risky and it is important to do conduct your own research and/or consult a financial adviser.
by: Michelle M