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Fear and Greed Index in crypto market: All explained

Fear and greed are strong emotions that may affect the investor's behavior, which can influence the stock market in the world of investments. While the concept of Fear and Greed might seem entirely sentimental and far from the common sense (or even dumb to many), successful traders use it to plan a prime trading strategy. Here is everything you should know about the Fear and Greed index in crypto market and how to not be trapped by it.

Fear and Greed Index in crypto market: All explained
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For every good trader it is vital to know what affects the market they are investing their money in, be it numbers and statistics or the behavior the public possesses towards a financial notion. Follow the rest of this article to know all about these factors. 

What is the Fear and Greed Index?

Though originally introduced for the stock market, Fear and Greed Index is used interchangeably for Bitcoin and large crypto assets too. Based on CNNMoney, Fear andGreed are the two primary emotions of traders and investors that determines how much they are willing to pay for stocks or a crypto asset. This index is measured on a regular basis to define whether the market is fairly priced or not. 

Logically when the Fear index rises the overall market and share price tends to have negative trends and move downwards. On the other hand, an unrestrained Greed would soar the prices as opposed to the Fear index. The price of most major crypto assets like the BTC price, is constantly affected by the Fear and Greed index.

How does the Fear and Greed index work?

As mentioned before, Fear and Greed is used by investors and traders to measure the market. Thus, implying that this tool is both defined and used by the people (or the investors in the same market). Unrestrained Greed can not only increase the share price of an asset but also go beyond what it is actually worth in a so-called normal situation. This is while a Fear index can disrate the price and market share of the same asset to a much lower degree than what it is actually worth. 

The Fear and Greed Index is a compilation of seven different factors that measure investor behavior.

  • Stock price momentum
  • Stock price strength
  • Stock price breadth
  • Put and call options
  • Junk bond demand
  • Market volatility
  • Safe-haven demand

Each of these indicators is measured on a scale of 0 to 100, with 50 showing a neutral behavior (what we call the normal situation) and anything higher or lower than that implying a greedy or fearful sentiment. 

fear and greed index

How is the crypto Fear and Greed Index calculated?

Alternative.me is a website that shares crypto (or Bitcoin) Fear and Greed index. The website calls the crypto market a fully emotional one by claiming that basically anything red (including numbers,rates and prices) will cause people to panic and sell their investments consequently after. 

Extreme fear can always mean a buying opportunity since most traders tend to sell their tokens as a result of their dominant feelings. This is while unrestrained greed can mean that there is something wrong  with the market that needs to be corrected.

crypto Fear and Greed index is also affected by several different indicators based on Alternative.me's crypto fear and greed index which are the following: 

  • Price volatility over the past 30 and 90 day
  • Market volume and momentum 
  • Social media mentions on Twitter and Reddit 
  • Surveys of crypto community members 
  • Bitcoin market cap dominance 
  • Google trends data 

How do Fear and Greed affect the decision of investors?

Fear and Greed are two of the most primary and controlling feelings in human nature. When it comes to money and financial issues, human greed has always been a determinative factor. Many people will act irrationally and based on their emotions when it comes to challenging moments in their lives. 

This opens multiple doors to those minorities who are able to act differently by keeping their common-sense and self-control safe and steady and avoid all decisions based on momentary emotions and use their analytical mind.

Is it possible to overcome Fear and Greed in trading?

For those who have a fixed trading plan, Fear and Greed is no longer an issue to be solved. Having a fixed trading plan and sticking to it will help you prevent all reactions based on sudden impulses or signals. Plus, no matter what happens you know where to go and what to do without the possibility of getting lost or being in need of navigation, which might also be another deviating road.

Another way to decrease the risk of Fear and Greed is to lower your investment size by investing small portions each time instead of involving your life-time savings or a huge bulk of money you had kept for the rainy day.

How to use the Fear and Greed index for better trading? 

While Fear and Greed might seem significantly dependent on the people’s sentiments and emotions, it might appear as a helpful tool for investors and traders to spot opportunities behind the headlines. For instance, a time of fear is when most traders sell their assets and that is actually a good time to buy cryptocurrencies at a remarkably lower price

Likewise the times of Fear, times of unrestrained Greed can also be utilized by smart traders to sell their assets in tha all time high of the market. Nonetheless, as mentioned above, being successful in crypto trading is under the condition of maintaining your common sense and having a strong trading strategy. 

Bottom line

Having a strong trading strategy is the primary thing you need when first aiming to dive in the crypto market. However, for that strategy to be applied accurately, you’ll need an appropriate platform. Security, reliability and simplicity are the key elements that best define a good trading platform. 

With PayPax, a leading financial service provider and online exchange, you can access world-class security as you trade and store assets in a highly secure internal wallet. What’s more is by asking your friends to join in through your link, you can simply become a PayPax affiliate and receive monthly referral bonuses while you enjoy a seamless experience of trading and exchanging a variety of crypto and digital assets on PayPax. 

 





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