Most investors feel left in the dark when it comes to understanding if the price of Bitcoin will go up or down over the coming days, weeks, and months. While it’s impossible to know for certain what the coming price movements will be in the near term, and investing with a long term mindset is always best, there are tools you can use in order to help you make more informed decisions.
Why measure Fear and Greed?
Since the Digital Asset market is partially driven by emotion (known as market sentiment), people tend to be much more greedy before prices correct and much more fearful when prices are bound to rise. This is simply human psychology and is why being a “trader” is often incredibly difficult for most.
There are two extremes on the Fear and Greed Index, and they are as follows:
- Extreme Fear: This is a sign that the market is very scared, and many times is an excellent buying opportunity.
- Extreme Greed: This is a sign that the market is over-optimistic, and many times is an excellent selling opportunity.
How is it measured?
This tool gathers data from the following five different sources and weightings.
Volatility is a measurement of how much recent movement there has been in the market, either up or down. If Bitcoin has been the same price for the last few weeks, volatility is low. If Bitcoin has gone up or down in price frequently over the last few weeks, volatility is high. If Bitcoin has had low volatility recently but sees a sudden spike over the coming days/weeks, that could mean that the market is gripped by fear.
Volume is a measurement of how much total amount of money has been traded recently, or how frequently Bitcoins are being bought/sold on the market. If there is very little trading action, the volume is low. If there is lots of trading action, the volume is high. Typically if the price is going up on high volume, this can be a sign of greed starting to show its face.
Twitter is used to measure how frequently Bitcoin is being mentioned and how much engagement those tweets are getting. Usually, the more active and busy twitter is, the more likely it is that greedy behavior is occurring.
Bitcoin dominance is a great metric to use when seeing if the market is fearful or greedy. When Bitcoin is gaining on dominance and alts are not performing as good, that is usually a sign of fear in the market as Bitcoin is considered safer. When Altcoins are significantly outperforming Bitcoin, this can be due to speculation and a sign of an increasingly greedy market.
Google Trends data is used to find out how many people are searching the term “Bitcoin”. If these search trends are growing rapidly, it’s typically a sign that the market is becoming increasingly greedy.
If you want to learn more about The Fear & Greed Index, head to Crypto Fear Greed Index
Disclosure: Trading any asset, let alone a highly volatile & speculative asset like Bitcoin is high risk. Do not use this as trading advice, but simply as educational knowledge to help you make more informed decisions.