The Crypto Fear and Greed Index is a sentiment indicator. It tells you wether the sentiment in the crypto markets are right now very optimistic or rather negative. It takes information from several sources like social media behaviour, the Bitcoin dominance, volatility, momentum and the price trend. The crypto markets are very emotional due to its volatile nature. Investors often buy when the price is rising (FOMO) and selling whenever the price is going down (Panic).
There is a famous saying : “Be greedy when others are fearful and be fearful when others are greedy”. This might be the perfect sentence, explaining how you can use the sentiment to detect great buying opportunities. Often it is more profitable to buy when the sentiment is very fearful and to sell whenever the sentiment turns to extreme greedy levels. It is important to note that you want to use this indicator with other signals as sentiment is a great long term indicator, in the short term it might not be that accurate. When we are seeing extreme fearful levels, it is still possible for the price of Bitcoin to decline, similar when we are seeing levels of extreme greed, the price can still continue to climb as irrational emotions can stay quite long in the markets. Therefor always make sure to look for further confirmations in diﬀerent signals.
Learn more about the Crypto fear and greed index in our learn section.