There are two effective rates in the financial and stock markets as defined by CNNMoney. These two rates are Fear and Greed Index, respectively. You may ask, what is the use of these rates? More precisely, each rate gives a weight of 14.2% to the indices on which it sets the price. But let’s take a closer look at the Fear and Greed Index rates.
In financial markets, seven indicators consider. Junk bond demand, market momentum, market volatility, put and call options, safe-haven demand, stock price breadth, and stock price strength. Each indicator clearly shows how a stock is currently performing.
Based on this, all seven indicators examine concerning their average. Their current difference is averaged between 0 and 100. Finally, a general index for stocks considers. The higher the number of this index, the more greedy investors have moved towards this stock.
Crypto Fear and Greed Index
Two indicators, Fear and Greed, are used to indicate investors’ desire for a particular stock. The indicator shows that the market is bullish or bearish. Then, based on the needles, investors’ fear or greed for a stock is indicated.
The behavior of investors at different stages towards a stock can be very different. In general, investors are fearful when the market is falling, and when the market is bubbling, their behavior is Greedy. If you can identify the behavior of investors at different times, you can get the best profit from that market.
Fear and Greed Index calculation method
Recently users , created a fear and greed index for Bitcoin. Both concepts are precisely the same, but the difference is in the indicator. They are determining both indicators can help when investing in digital currencies and when to exit the market.
The rating index is between 0 and 100. The closer this number is to zero, the more investors are reluctant to buy, and conversely, if the index is close to 100, investors are strongly inclined to buy. You can use this indicator as an effective signal to identify the ups and downs of a market.
To determine the greed and Fear indices, we must use six indicators. The combination of the results of these indicators can select the final figure of the index for us.
In general, volatility measures the volatility of bitcoin relative to its average rate at 30 and 90-day intervals. If there is a sharp increase, the fearful market index shows.
This indicator’s volume of Bitcoin market transactions checks with an overall average between 30 and 90 days. If the volume of transactions is increasing sharply, it indicates a bullish market.
Social networks can also be used as a marker. The number of likes, posts, hashtags on Twitter relative to the digital currency compares to its average in the previous period. If this amount is higher than the average, the market is greedy.
The amount of circumference is a number that indicates how much of the total digital currency market share considers. The higher the number, the less investment in Altcoins, so the market will be bearish.
With an overview of Google Trend, it is possible to check whether the users’ interest in this digital currency has increased compared to other periods, so it is possible to calculate the Greed or Fear of investors from this indicator.
Previously, questions were asked in the form of advertisements in cyberspace to understand the willingness of users and investors. Such a method is no longer active now, but it can be used as a marker to determine the market index.
In general, fluctuation and momentum indicators can be used as numbers and other indicators as a quality average to determine the Fear & Greed index. Each indicator shows how investors are feeling now and what they will do next. This is an indicator for predicting market behavior.
The fluctuations of the digital currency market are huge, so that no indicator can express it definitively. To decide to invest in the digital currency market, you need different technical studies and indicators to reach your main goal.
Fear and Greed indices are not the only values that can be used to determine market behavior. When you think you have made the best decision, the market reacts negatively, and this is where you can never predict.