Fear and Greed Index - Crypto Academy / S4W5 - Homework Post for @wahyunahrul | by @benjamin09
1. Explain why emotional states can affect cryptocurrency price movements?
Market movements are caused by the demand and supply of the currency. And since demand and supply are being controlled by the emotional state of the human trader. When the trader has a change in emotion, he might either buy or sell thus affecting demand and supply and therefore, the price movements of the cryptocurrency in the market.
If a buyer senses that the price might fall, he will experience fear and thus sell, reducing demand and supply. This action of fear will change the price and price will rise because a fall in supply leads to a rise in price.
Or if the buyer senses the price rising, he will be greedy and will buy in order to make massive profits. This action of greed will lead to a rise in demand and also supply causing a fall in price because a rise in supply leads to a fall in price.
2. In your personal opinion, is the Fear and Greed Index a good indicator of the market's emotional state? if not, try to give reasons and examples of other similar indicators for comparison.
The fear and greed index indicator is an indicator that really helps the buyer to know the market emotional stance in order to place a successful trade.
For my personal opinion, the fear and greed index is a good indicator of the market's emotional state. I will justify my reasons for saying so in the following points.
- The fear and greed index uses analyzed information from different sources which are ; market volatility, market volume and momentum, social media, surveys, coin dominance against cryptocurrency market, and trends. Since there are many sources for the information to be collected to make the fear and greed index, this indicator is reliable as it indicates the emotional state of the current market.
- This index measures the fear of traders and the greed and it also acts as an indicator to place trades. When the market is in extreme greed, the traders are buying excessively but this also acts as an indicator that the market will soon drop.
And when the market is in extreme fear, the traders are selling their crypto in fear of reds but this also an indicator telling the trader to place buy orders.
Source
- The Fear and greed index is an incredible indicator of the emotional status of the market and it shows the analyzed data in a very easy to read and understandable chart. It has less numbers and lines as opposed to other indicators such as ADX(Average Directional Index) which has 3 lines passing through and it is very difficult to understand by many users and traders. The Fear and greed Index just shows the analyzed data of the market emotion in a very straight-to-the-point manner, as it just shows the percentage and then written above is the market status(whether extreme fear, fear, neutral, greed and extreme greed).
3. Give your personal opinion on what data should be added to the Fear and Greed Indicator.
The Fear and Greed Index is a very good and helpful indicator to investors but to my point of view, it still lacks several innovations. Such as:
- Firstly, and most important of all to me is, the lack of shorter periods or timeframes in showing data. This aspect is very important to short term traders like myself who like operating within 15 minutes timeframes. The fear and greed index shows only the data which can be used by a medium term trader and a long term data. The data is given only in periods of 7 days, 1 month, 3 months, 1 year and max.
Source
I will love it if there were more timeframes like 4 hours, 1 hour, 30 minutes, 15 minutes and 5 minutes. These will be of great help to short term traders who need only latest data and not accumulated data.
- Secondly, the Fear and Greed Index will be very essential as an indicator if it was available to more crypto currencies and even foreign exchange currencies. The Fear and Greed is very limited to the Bitcoin crypto currency of which it is a very good and essential indicator which will be of great help to traders trading other crypto currencies and foreign exchange currencies.
4. Do a technical analysis for 2 to 3 days (maybe more) using the Feer and Greed Index and the help of other indicators. Show how you made the decision to enter the cryptocurrency market and explain the results of your trade (Screenshot Required)
For this illustration, we will be using the 3 dates 06/10/2021, 07/10/2021, and 08/10/2021.
From the above screenshot, the amounts on the fear and greed index are as follows; 68, 76 and 74 respectively. This indicates that the market was in a state of greed at 68, went to extreme greed at 76 and started falling by going down to 74. This is an indicator telling me that the price will soon fall. So I decided to check with another indicator to confirm it.
From the above screenshot, I used the moving average indicator in order to confirm my trade. And at the highlighted circle, the candlesticks crossed the moving average line and was moving in a downward trend, so I knew that the price will fall and thus decided to place my sell order.
From the above screenshot, I placed my sell order at a convenient spot and I put my take profit and stop loss. I then clicked on sell.
After the trade closed, my account balance reduced by 0.99 because there was a loss of 0.99.
Conclusion.
After the completion of this task, I know and understand the Fear and Greed Index with all its benefits and downsides. Also, I can place a trade based on the data given to me by the Fear and Greed Indicator in association with other indicators such as moving average Indicator.
Thanks for reading.
Hi @benjamin09, Thanks for taking my class.
Based on the homework that you have made, here are the details of the assessment you get:
My Reviews and Suggestions:
You have completed the given task.
In the explanation of question number 1 you should show a real example of how emotional conditions can affect the cryptocurrency market.
In question number 4 it seems that you are wrong in determining the stop loss and take profit levels, especially in short-term trading. To determine it, there are provisions such as having to first determine the resistance level, determine the Risk/Reward ratio, etc. You can learn more about assignments that have been given by other professors. However you've shown how you make decisions using the Fear and Greed Index, good job!
Provide some additional images so that the assignments you make look more interesting to read.
Thank you!
Thank you professor. I will follow your recommendations in the next assignments.