Why is the Crypto Fear and Greed Index Important?
The behavior of the crypto markets depend on a lot of things, and the emotions of crypto holders is one of them. People often get greedy when they see the market rising, and end up giving into FOMO (fear of missing out) and greed. Or they see the market dip and sell their coins, often irrationally, and cave to FUD (fear, uncertainty and doubt). The index hit 23 on the 23 November 2019 and plummeted to 17 on 25 November, which is a measure of “extreme fear”. But why is the crypto fear and greed index important? Let’s take a look.
What is the fear and greed index?
The fear and greed index is a way of measuring sentiments towards the cryptocurrency markets. By analyzing the emotions and sentiments of people from multiple sources over the course of a day, websites like Alternative.me are able to determine a single score that represents all of those sources.
Extreme fear, which is signalled with a low score, is a sign that investors are getting worried. This could be a solid buying opportunity for those looking to trade. When investors are getting too greedy (signalled by a high score), the market is due for a correction and should dip. Zero on the index means “Extreme Fear,” and 100 means “Extreme Greed.”
Importance of the fear and greed index
So, why is the crypto fear and greed index important?
A reading of 23 (or 17) is on the “extreme fear” end of the index. This is important because many people believe that emotions drive the crypto markets. RektCapital, an analyst, wrote in a recent blog post:
“Emotions move markets. Greed drives price up. Fear drives price down. Human psychology tends to be predictably irrational because many people tend to react similarly in certain contexts.”
Keeping up to date with investor sentiment is vital, as it shows you how and when to make your trades. When other investors are greedy, you should be cautious, and when others are fearful, you should act. Times when there are extreme levels of fear are generally ideal for those opportunistic enough to buy during a lull in the markets. Fear drives price down and greed drives price up, so it’s during times of fear that greed actually begins to fester.
You can use the crypto fear and greed index to your advantage. By monitoring it and knowing what it means, you can know when to buy a coin at exactly the right time. Times of extreme fear have signalled a bull run in the near future, and it’s up to traders to take action or succumb to fear.
Using the fear and greed index
Why is the crypto fear and greed index important? Because it can help you to make investments at the right time. Understanding the way people’s emotions influence the market is vital to making successful trades. The crypto fear and greed index is a fantastic tool for all traders, new and experienced.