Fear Greed Index

The Fear and Greed index is a market indicator that analyzes market sentiment using fundamental and sentimental metrics.

What is an Index?

An index is a collection of multiple data points that are combined to form a statistical measure. For example, stock indices like the S&P 500, Dow Jones Industrial Average, and Nasdaq composite track the largest companies listed in the US stock markets to provide an overall outlook of the market. Similarly, the Crypto Fear and Greed index is a weighted measure of market data that can be used to indicate fear or greed within the market. Unlike stock indices, the fear and greed index cannot be purchased.

The Crypto Fear and Greed index work

The crypto fear and greed index was developed by Alternative.me and tracks different market indicators and indices to determine whether the market is greedy or fearful on a scale of 0-100. A score of 0 represents extreme fear, a score of 100 represents extreme greed, and a score of 50, which is in the middle, represents neutral sentiment.

Fear

A fearful market could indicate a down-trend after a huge sell-off in the market. From a contrarian view, it could also indicate that the market is undervalued.

Greedy

A greedy market could indicate an uptrend with high buying pressure. From a contrarian view, it could also indicate excess demand and buying pressure thus, representing an overvalued market.

How does it work?

The index calculates market sentiment every day to provide a score between 0-100 using only Bitcoin (BTC) related information. Alternative.me tracks Bitcoin’s sentiment because it is the largest cryptocurrency by market capitalization, and it tends to dictate the overall market trend.

The scale is divided into the following categories:

• 0-24: Extreme fear (orange)

• 25-49: Fear (amber/yellow)

• 50-74: Greed (light green)

• 75-100: Extreme greed (green)

The index is composed of the following factors:

• Volatility (25%)

• Market momentum (25%)

• Social media sentiment (15%)

• Bitcoin dominance (10%)

• Google trends (10%)

• Survey results (15%)

Why is it important?

Market sentiment is important because it indicates whether investors perceive the market as bullish or bearish. For example, when markets are fearful and oversold, a contrarian investor would opt to buy into the market at a low price, and when the markets are greedy, this may indicate a bubble or blow-off top, which would be a good time to get out early and secure some profits.

Additionally, the Fear and greed index usually correlates with the market prices thus, it can provide good swing trading opportunities in the short and mid-term, but it does not work well for long-term analysis.