Fear and Greed Index - Crypto Academy / S4W5 - Homework Post for @wahyunahrul
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Course question
1). Explain why emotional states can affect cryptocurrency price movements?
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.
3). Give your personal opinion on what data should be added to the Fear and Greed Indicator.
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)
1). Explain why emotional states can affect cryptocurrency price movement?
Most of the cryptocurrency traders makes trading decisions based on their emotional States to gain and avoid lossing of funds in the cryptocurrency market rather than using fact, by this, their decisions normally cause an uptrend and downtrend in the market.
Looking at the law of demand and supply which is also applicable to cryptocurrency,it state that the higher the price of an asset, the less a buyer will demand for a particular asset and the higher the price of an asset the more the seller will supply their asset. This law is connected to the effect of emotional state which determines the price of an asset.
I will explain how it connected and how the emotional state affect the price movement.
Cause of the volatility nature of cryptocurrency most traders normally becomes emotional which leads them into making irrational decision that affect the price of assest.
For example, using the two human emotions, the fear and greed emotions.
In the fear emotions, when a cypto trader observe that his asset is suffering a huge losses for some period, these trader will become more fearful thinking of further losses, by this the will giveup and sell their asset to avoid further losses, the impact of this selling will cause a downtrend in the market in other words, cause the value of cryptocurrency to reduce.
In the other hand, the greed emotions occur when a traders are desperate to make profit quickly. With this, the greed emotions will lead them into buying of asset that is rising greatly with the hopes that when it rise higher the will make profit. This greed behavior will cause an uptrend in other words, it will affect the price movement by making the price of the cryptocurrency to increase(increase the value of the currency).
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.
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In my own opinion i will go for a yes!!. Fear and
greed index are very good indicator when talking about the market emotional state though it as some few set back and disadvantages too, but the advantages of the fear and greed index can't be over look.
Looking at the way it works and the benefits of using this fear and greed index as an indicator in market emotional state, trader have confirm this past few years that fear and greed index has been a reliable indicator for a major effect of the change in crypto market.
And also looking at the major advantage of this indicator, which it helps in showing lastest market trend, having a tendency of producing accurate data and lastly, being able to easily understand it concept compared to some other indicator which are contrary,like giving wrong signal,being too complex to understand easily in some cases.
With this little expression i believe greed and fear index is a good indicator for the emotional market state.
Give your personal opinion on what data should be added to the Fear and Greed Indicator.
In my own opinion i will suggest that the Market price breath data should be added to the fear and greed indicator for the reason being that this data will be able to present the total number of asset that are going through price increase against the number of asset that are decreasing in price, this increase in market price higher than the decrease price will portrait a greed scenerio and will show if the market is in bullish or bearish.
Lastly, with this data it will help the trader to know the major stock index which are likely to fall or rise.
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)
Above, is the chart of fear and greed index from the last two days starting from when i made this post. From this chart i observe that when the market emotion approach the greed the graph will atomatically signal an uptrend which means that the value of the crypto coin has increase, from this graph i got a useful information when to enter the market and when the will be a reversal trend.
According to the image above on the 7th October the fear and greed index show the value of 76, which signifys that greed was the emotions condition of the market at that time.
Using fear and greed indicator on tradingview
You can see the indication of fear and greed on the chart indicator above, which still gives the same information has the fear and greed index on the first image.
also confirm using the RSI indicator which also confirms the was an uptrend.
Through the information gotten from the fear and greed index chart i quickly proceed and make a buy trade through my demo account.
You can see the result of the trade i make it was successful and profitable.
Conclusion
Fear and greed indicator is a technical tool use in studying the market emotions state in the cryptomarket.
Cause of the volatile nature of cryptocurrency many crypto trading go into trading with emotions rather than fact which sometimes cause them to loss asset. I dont advice trading with emotion cause it something cause a lot of regret when things does not go as plan.
Looking at the fear and greed indicator i think it a good indicator for market emotional by the way it smart and easy to understand it will be of great help to the technical traders has far has the market emotional state is concern.
Once again thank you prof.@wahyunahral for the well explanatory and clarify lecture you really took time to explain every part of this lesson to my own understanding.