About Fear & Greed:
In the world of investing, emotions often play a significant role in decision-making. Fear and
greed are two emotions that can heavily influence the behavior of traders in financial markets.
To quantify these emotions, the market fear and greed index was created. We will discuss what
the market fear and greed index is and how it can be used for Bitcoin.
| Score |
Sentiment |
Action |
|---|
| 0-25 |
EXTREME GREED |
BUY |
| 25-50 |
FEAR |
BUY |
| 50-55 |
NEUTRAL |
HOLD |
| 55-75 |
GREED |
HOLD |
| 75-100 |
EXTREME GREED |
SELL |
What is the Market Fear and Greed Index?
The market fear and greed index is a sentiment indicator that measures the emotions of
traders in financial markets. It is a composite index that takes into account various
factors such as volatility, volume, put/call ratios, and other technical indicators. The
index ranges from 0 to 100, where a score of 0 indicates extreme fear, and a score of 100
indicates extreme greed.
The index is calculated daily and can be used for various financial instruments such as
stocks, bonds, and currencies. It is a useful tool for investors as it can provide insights
into the overall sentiment of the market.
How can it be used for Bitcoin?
Bitcoin is a highly volatile asset, and emotions often play a significant role
in its price movements. The market fear and greed index can be used to gauge the sentiment of
traders towards Bitcoin. When the index is in the extreme fear zone, it may be an excellent opportunity
to buy Bitcoin as it could indicate that the asset is oversold. On the other hand, when the index
is in the extreme greed zone, it may be a sign that the asset is overbought and could experience
a price correction.
It is important to note that the market fear and greed index should not be used in isolation
when making investment decisions. It should be used in conjunction with other fundamental
and technical analysis tools.
Conclusion
The market fear and greed index is a sentiment indicator that measures the emotions of
traders in financial markets. It is a useful tool for investors as it can provide insights
into the overall sentiment of the market. When used in conjunction with other fundamental
and technical analysis tools, it can be a powerful tool for making investment decisions. As
for Bitcoin, the market fear and greed index can be used to gauge the sentiment of traders
towards the asset, providing a potential opportunity for buying or selling the
cryptocurrency.
The Algorithm
Volatility (25 %)
We’re measuring the current volatility and max. drawdowns of bitcoin and compare it with
the corresponding average values of the last 30 days and 90 days. We argue that an unusual
rise in volatility is a sign of a fearful market.
Market Momentum (25%)
Also, we’re measuring the current volume and market momentum (again in comparison with the
last 30/90 day average values) and put those two values together. Generally, when we see
high buying volumes in a positive market on a daily basis, we conclude that the market
acts overly greedy / too bullish.
Social Media (15%)
While our reddit sentiment analysis is still not in the live index (we’re still
experimenting some market-related key words in the text processing algorithm), our twitter
analysis is running. There, we gather and count posts on various hashtags for each coin
(publicly, we show only those for Bitcoin) and check how fast and how many interactions
they receive in certain time frames). A unusual high interaction rate results in a grown
public interest in the coin and in our eyes, corresponds to a greedy market behaviour.
Surveys (15%)
currently paused Together with strawpoll.com (disclaimer: we own this site, too), quite a
large public polling platform, we’re conducting weekly crypto polls and ask people how
they see the market. Usually, we’re seeing 2,000 - 3,000 votes on each poll, so we do get
a picture of the sentiment of a group of crypto investors. We don’t give those results too
much attention, but it was quite useful in the beginning of our studies. You can see some
recent results here.
Dominance (10%)
The dominance of a coin resembles the market cap share of the whole crypto market.
Especially for Bitcoin, we think that a rise in Bitcoin dominance is caused by a fear of
(and thus a reduction of) too speculative alt-coin investments, since Bitcoin is becoming
more and more the safe haven of crypto. On the other side, when Bitcoin dominance shrinks,
people are getting more greedy by investing in more risky alt-coins, dreaming of their
chance in next big bull run. Anyhow, analyzing the dominance for a coin other than
Bitcoin, you could argue the other way round, since more interest in an alt-coin may
conclude a bullish/greedy behaviour for that specific coin.
Trends (10%)
We pull Google Trends data for various Bitcoin related search queries and crunch those
numbers, especially the change of search volumes as well as recommended other currently
popular searches. For example, if you check Google Trends for "Bitcoin", you can’t get
much information from the search volume. But currently, you can see that there is
currently a +1,550% rise of the query „bitcoin price manipulation“ in the box of related
search queries (as of 05/29/2018). This is clearly a sign of fear in the market, and we
use that for our index.