During a crypto trade, a trader need to understand various factors and metrics for a successful approach. One of that factors is the Fear and Greed Index. So, what is it, how is it calculated, and should you use it? Here, we will discuss it all. Moreover, you will learn its benefits and a quick way to get the index number via the PlasBit Fear Calculator widget. So, let’s begin!
What is Crypto Fear & Greed Index?
The Crypto Fear and Greed Index is used to determine the sentiment of the crypto market. This index helps to determine social signals and identifies market trends. It entirely relies on Bitcoin and significant cryptocurrencies. The Crypto Fear and Greed Index analyzes investors’ buying and selling patterns in the crypto world.
However, it uses various data sources to provide a single figure. The entire index is scored from 0 to 100. It is further categorized from extreme fear to extreme greed.
This index assists in following trends, explaining the time to enter and exit the trading. On any critical event, investors are notified promptly to make decisions without waiting for the industry to operate during business hours.
Stages of the Index
There are five indicators measured on a scale of 0 to 100. The index is then computed with an equal-weighted average of each parameter. 50 is the neutral indicator, while a higher number signals greed.
- 0–24 indicates extreme fear and is in orange.
- 25-49 indicates fear and is in an amber or yellow color.
- 50–74 indicates greed and is in light green.
- 75–100 indicates extreme greed and is in green.
Fear
It is famous for volatility and investor sentiment. The pointer is used concerning the stock market and is also termed as Fear Gauge to quantify the anxiety among traders. When the number is low, traders are confident and expect low volatility. But when it is high, the participants are uncertain about the high volatility.
Greed
The greed term describes the irrational behavior of participants with the desire for excessive gains. It often leads to an imbalance in the market because people use trading strategies to amplify volatility.
How Does it Help Crypto Traders?
The Fear and Greed index proves to be the best contrarian indicator for crypto traders because it suggests better buying opportunities. However, it does help the traders by providing insights to minimize the associated risks. Moreover, traders use this pointer method to recognize potential trends by observing shifts and patterns in sentiment.
How is it Calculated?
While analyzing, it is essential to consider some critical aspects affecting the indexing. These indexing rules must be followed to visualize meaningful progress in the sentiment change of the crypto market.
Remember, the current index is for bitcoin changes only, as it is the paramount part of the cryptocurrency and dramatically influences the trends. But let’s consider different factors to know how it works.
1. Volatility
If volatility gets high, fear in the market also gets high. To measure the volatility, respective comparisons are made from the last 30 days to the last 90 days. This helps calculate the average volatility value of Bitcoin. However, if volatility falls, the market sentiment shifts towards greed, so 25% of the index result is based on volatility.
2. Market Volume/Momentum
Market Volume/momentum is calculated similarly to the previous parameter by comparing the current stats to the average of the last 30 days to 90 days. Generally, the market is considered overly greedy when buying volume exceeds the daily value. So, 25% of the result depends on the volume/momentum.
3. Surveys
Asking people directly about cryptocurrency is an effective method. Some websites conduct weekly polls to determine where the market is going. This helps to get a complete emotional picture of a group of crypto investors because every poll holds 2500–3000 votes. The expressed opinions comprise almost 15% of the Fear and Greed Index.
4. Social Media
It plays a vital role because social media carries 15% weight and cannot be ignored at any cost. It is essential to monitor the hashtags for coins on social media. So, when hashtags get high interaction rates, there is a tilt toward greed. It means interest in the specific hashtag gets high. However, when the numbers fall, the shift movestoward fear territory.
5. Bitcoin Dominance
The dominance of Bitcoin is similar to the market cap share of the crypto industry. It means that if Bitcoin’s dominance rises because of fear, people will be more careful when choosing crypto. When Bitcoin’s dominance gets low, people invest more in altcoins. Thus, people’s interest in other alt-coins may create greedy or bullish behavior. Bitcoin dominance is 10% of the index.
6. Google Trends
Google Trends search data is used to look for various queries. The queries related to Bitcoin tell us more about the general atmosphere in the market. Suppose the query “Bitcoin price” is getting high; there are signs of fear while trading that is used for the index up to 10%.
Can You Benefit Your Crypto Trading with the Fear & Greed Index?
Crypto trading with the Fear and Greed Index helps to make good investing decisions. But how can you calculate the figure and understand the current shift in the market? That’s where the PlasBit Widget of Fear Calculator comes into play.
Just click the Fear Calculator on the page, which will give you the current value. You will also get the number from yesterday, a week, and a month ago for better understanding and analysis. Using the trend index indicator helps to make broad decisions and can be used for long-term trading.
Should You Use a Fear & Greed Calculator?
The fear and greed calculator provides a meaningful result, but small efforts may invalidate the analysis. However, it helps to define uncertainty in the crypto world, and it is known as a potential opportunity for many people. It is wise to consider other tools, such as our PlasBit Widgets calculators, to analyze sentiment behavior in the market.
Conclusion
Fear and Greed Index helps traders a lot in making an informed decision. Although it relies on the shift in Bitcoin and popular crypto market prices, the value is enough for traders to understand the profitable trade options. PlasBit offers you Fear Calculator to further ease the process, where you don’t need to calculate the figure yourself. So, try it now and increase your chances of making a successful trade by making informed decisions.
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