It is vital to understand and look upon sources and supportive data while trading cryptocurrency, even when you are an experienced investor. The reason being? Cryptocurrency is highly volatile and subject to market fluctuations, no one can predict, and hereby it becomes essential for individuals to study relevant data before taking a big step in crypto trading. These sources and data can include charts, fundamentals, and market sentiments. Though analysing metrics and indexes is not always manageable and efficient, the crypto fear and greed index is something one can look upon for easier and more efficient study. If you are planning to trade crypto, you might consider using a reputable app that will help you in your trading journey. For more information you can visit https://tesler.software/.
The crypto fear and greed index can be defined as a combination of market sentiments and metrics fundamentals that work to provide a peek of the market fear as well as greed. Both can enable one to understand the overall functioning of the crypto market however should not rely completely on the indicators alone.
WHAT IS THE CRYPTO FEAR AND GREED INDEX?
As discussed earlier, both are a way to measure crypto market sentiments. Moreover, the crypto far and greed index help investors make decisions precisely based on multiple inputs of the crypto market. Both indicators indicate the bullishness and bearishness of the market (high and low). With regard to crypto fear measurements, “extreme fear” denotes the worry of an investor but can also open doors for new opportunities. On the other hand with regard to the greed indicators, indicated that the investors have become too greedy and the market needs correction.
THE WORKING OF CRYPTO FEAR AND GREED INDEX
Both the indicators have a score ranging from 0 to 100. With this, the lower the score range is the higher the fear aspect becomes in the market. This causes investors trading currency markets to fall. On the other hand, a higher score range signifies higher greed in the market. This means that more and more people are buying. A higher gear score is denoted by red whereas a higher greed score is denoted in green. “High fear” can range from 0 to 24, whereas normal fear can range from 25-to 49 scores. A neutral condition can be seen on the 50th score. In the case of high greed, the score ranges from 75-to 100 whereas 51-74 for normal greed.
CALCULATING CRYPTO FEAR AND GREED INDEX – PRIMARY FACTORS
1. CRYPTO VOLATILITY
The cryptocurrency market is extremely volatile and can affect the indicators to a huge extent. The index helps compare the volatile nature of coins and the maximum decline in their value. The higher the volatility is the higher will be the fear resulting in a final output increase. Moreover, the volatility factor designates 25% of the value of the index.
2. SOCIAL MEDIA
You must be wondering how social media can contribute to the crypto index? Well, the index is responsible for tracking the mentions and hashtags of bitcoins on different social media channels. An increase in mentions and hashtags represents higher reach and increased market involvement. This results in an increase in the final index results. Moreover, the social media factor designated 15% of the total index value.
Also referred to as the momentum of the bitcoin market, it is measured by the index. Higher momentum suggests negative metrics and increased final outputs and vice versa. This factor contributed to 25% of the total index value.
4. CRYPTO DOMINANCE
Crypto dominance is also calculated by the index itself in the overall fluctuating market. A higher rate of bitcoin dominance means a higher fearful market and new coin investment. On the other hand, lower bitcoin dominance represents higher market greediness. The dominance factors contributed 10% of the total index value.
5. GOOGLE TRENDS
This represents multiple google trends in the last value. Google trends and the market index works upon search results on web pages. Higher search interest in bitcoins and altcoins represent a higher amount of greed in the market. This factor represents 10$ of the total index value.
Huge scale market-wide surveys, including multiple geographical locations regularly, are also an essential concept under market indicators and the calculation of the fear and greed index. The higher the survey results the higher will be the index signifying market greed increase. The survey factor is an essential part for not only calculating market greed and fear but for also understanding the audience better and performing analysed strategies. The survey factor represents 15% of the total index value, for a lot of bitcoin trading platforms.