Using Fear & Greed Index to trade? Why not, it seems to work !
If you have been in the CryptoWorld for a while, you probably came accross this indicator.
What is it?
The crypto market behaviour is very emotional. People tend to get greedy when the market is rising which results in FOMO (Fear of missing out). Also, people often sell their coins in irrational reaction of seeing red numbers. With our Fear and Greed Index, we try to save you from your own emotional overreations. There are two simple assumptions:
- Extreme fear can be a sign that investors are too worried. That could be a buying opportunity.
- When Investors are getting too greedy, that means the market is due for a correction.
Therefore, we analyze the current sentiment of the Bitcoin market and crunch the numbers into a simple meter from 0 to 100.
The complete list of factors with their weighting
- Volatility (25%)
- Market Momentum/Volume (25%)
- Social Media (15%)
- Surveys (15%)
- Dominance (10%)
- Trends (10%)
For a full disclosure on what are these factors exactly referring to please go to their website
We are seeing a very high level of fear (or low level of greed). I posted below a graph of their Fear & Greed Index followed by a graph of the Bitcoin Price.
In the last 18 months, the indicator dipped strongly 2 times before and when it did you can see the reaction by BTC a few weeks later !
I am not saying it is a 100% probability metric but something is SURE; I prefer buying when people are scared than the opposite. And today, it seems investors are being careful maybe too much?
Crypto Fear & Greed Index since inception
BTC / USD Price
Published by Mr. Crypto Lemon
Posted from my blog with SteemPress : https://mentormarket.io/cryptocurrencies/mr-crypto-lemon/using-fear-greed-index-to-trade-why-not-it-seems-to-work/