In the crypto and stock markets, investor sentiment is one of the most important things to consider. Investor sentiment refers to investors’ shared feelings and views regarding the market or an asset.
Investor sentiment in the crypto and stock markets is important because it can impact market behavior and asset prices. This is also the reason behind creating the Fear and greed index.
Fear means “fear,” while Greed means “greed.” Usually, this Fear and Greed Index will be seen on social media and is the subject of discussion in the crypto community.
So, to better understand the Fear and Greed Index in crypto and stocks, the differences, and how it works, see the following review.
What is the Fear and Greed Index in Crypto and Stocks?
The definition of Fear and Greed Index is a tool used as a measure of crypto and stock investor sentiment. The Fear and Greed Index indicates investors’ emotional and psychological levels towards the market.
On the other hand, the Crypto Fear and Greed Index is a score that shows crypto market sentiment with a score ranging from 0 to 100. However, the Crypto Fear & Greed Index only measures Bitcoin.
Furthermore, the Crypto Fear and Greed Index was designed by Alternative. Me concerning the CNN Money Fear and Greed Index, which is used to analyze the stock market.
For information, the meaning of Fear (scores ranging from 0 to 49) shows that the market is undervalued and oversupplied, and this can be a signal/signal of the right time to buy or “Buy The Dip”.
On the other hand, Greed (score ranging from 50 to 100) shows that the crypto is overvalued and perhaps in the middle of a bubble and indicates that a bull market period may soon be over.
The Difference between Fear and Greed Index in Crypto and Stocks
It is important to note that even though the Fear and Greed Index are used in trading crypto assets and stocks, they have differences. The difference between the Fear and Greed Index in the crypto and stock markets lies in the context of application or application.
Therefore, it is important to understand the difference to interpret and conduct an appropriate analysis of the current market situation.
The following are several differences between the Fear and Greed Index on the crypto and stock markets that you need to know, namely:
1. Emotional Aspect
From an emotional perspective, the crypto market tends to be more volatile and prone to rapid and drastic price movements than the stock market, so emotional factors and investor sentiment will often have a more significant impact.
2. Nature of the Market
Crypto and stock markets have different natures and characteristics. The crypto market exists 24/7, so investor sentiment can change quickly and frequently.
3. Factors Affecting Sentiment
Another difference is in the factors that influence investor sentiment. In the crypto market, factors such as government regulations to new project announcements will significantly impact investor sentiment.
Meanwhile, factors influence investor sentiment in the stock market, for example, company financial reports, economic news, monetary policy, and regulatory changes.
4. Different Analysis Tools
The Fear and Greed Index on the crypto and stock markets may use different analytical methods to calculate and show market sentiment.
In the crypto market, the index used will probably take data from different sources and consider specific factors related to the crypto market.
On the other hand, the indicators and methods used in the stock market are likely to be more focused on the fundamental and technical factors common to the stock market.
How the Fear and Greed Index Crypto Works
After knowing the definition and difference between the Fear and Greed Index in crypto and the stock market, it is important to understand how it works.
Understanding how the Fear and Greed Index works in crypto is, of course, very important. The reason is this will help to understand market sentiment and is useful for making better investment decisions.
The Fear and Greed Index in crypto has a range of values from 0 to 100. In this case, a lower score means more Fear is in the market, while a higher one indicates a degree of Greed.
Extreme Fear has a score of 0 to 24. Then, Fear has a score ranging from 25 to 49. An indicator in the range of 50 means Neutral, but if it is in the range of 51—74, there is Greed in the market. Levels up to Extreme Greed if the score is above 75.
Meanwhile, when the index measures Extreme Fear, there will be many market participants selling and lowering the price, so that condition could be an opportunity to buy.
On the other hand, when the index is at the Extreme Fear level, the Fear Of Missing Out or FOMO condition can be used as an opportunity to take profits by selling at the peak of the market price.
How to Calculate Crypto Fear and Greed Index
Now that you know how the Fear and Greed Index Crypto works, it’s time to learn how to calculate it.
Understanding how to calculate the Fear and Greed Index in the crypto industry can help investors and traders gain insight regarding market sentiment and potential changes in price trends.
As mentioned above, Alternative. I referred to CNNMoney in designing this Crypto Fear and Greed Index. Although the concept is the same, the indicators are different.
As with stocks, the Fear and Greed Index in crypto assets has a score ranging from 0 to 100. In this case, 0 indicates extreme Fear, while 100 indicates extreme Greed.
This Fear and Greed Index can signal the top and bottom of the cycle in the crypto asset market.
Fear & Greed Index Rating Indicator
Do you understand how to measure the Fear and Greed Index? Next, you need to know the Fear & Greed Index assessment indicators.
This is important to understand because it is useful for measuring market sentiment, identifying investment opportunities, managing risks, and anticipating changes in trends to serve as additional information in making investment decisions.
As for crypto assets, the Fear and Greed Index will be assessed based on 6 (six) indicators designed from quantitative and qualitative measures, including:
1. Volatility (25%)
The first assessment indicator is volatility, with a percentage of 25%. Later, it will be compared between the current volatility of a crypto asset and its maximum withdrawal with the average value of the last 30 and 90 days.
In this case, a sharp increase in volatility may indicate that the market is in a fear state.
2. Market Momentum/Volume (25%)
The momentum market will combine market volume with the current crypto asset market momentum, then compare with the average of the last 30 and 90 days. If the upward momentum is strong, it could indicate a bull market.
3. Social Media (15%)
Furthermore, some social media indicators utilize sentiment analysis by counting the number of posts, replies, and hashtags from Twitter social media. If interaction increases dramatically quickly, the market is probably greedy.
4. Market Domination (10%)
Next is dominance which can measure the amount of market capitalization taken by a crypto asset from the overall share of market capitalization in crypto assets.
In this case, the growing dominance of the coin or token asset indicates that there is less speculation available for other crypto assets, and it could signal a bearish market among investors.
5. Recent Trends (10%)
The latest trends can be obtained from Google search trends for terms related to a crypto asset. It would help if you also considered search volume and recommendations from popular sites to see this trend.
6. Surveys (15%)
Usually, weekly surveys are held on polling platforms to find out one’s thoughts on the market. However, it should be noted that recent survey methods have rarely indicated the Fear and greed index.
Example of Fear & Greed Index on Crypto
Furthermore, it is also important to understand the example of the Fear & Greed Index in Crypto after knowing the indicators.
This is important to understand because, later, it can provide an overview of market sentiment and assist investors/traders in making investment decisions.
To understand the example of the Fear and Greed Index in crypto, first look at the Bitcoin price chart in the two images below.
The Bitcoin chart in Figure 1 shows that when the Crypto Fear and Greed Index touched the green line near number 10, the Bitcoin price increased from its lowest level by 5 (five) times. The details are as follows:
- First raise: +70%
- Second increase: +45%
- Third increase: +310%
- Fourth increase: +25%
- Fifth increase: +300%
Vice versa, when the Crypto Fear and Greed Index is at 90 (shown by the red line in Figure 1), the price of Bitcoin has decreased from its highest level 2 (two) times. Here are the details:
- First drop -40%
- Second drop -45%
In conclusion, the Fear and Greed Index is a tool used to measure investor sentiment in crypto and stocks. The Fear and Greed Index indicates the level of emotion and psychology with investors against the market.
The Fear and Greed Index is important in measuring investor sentiment in the crypto and stock markets. This is because the measure of sentiment will provide insight into how fearful or greedy investors/traders are in that market.
Therefore, it is important to consider the Fear and Greed Index as an analytical tool for making investment decisions. That’s because the Fear and Greed Index will provide an immediate picture of market sentiment.
Thus, here is a complete discussion of the Fear and Greed Index, from the definition to the examples you need to know. For information, you can also learn crypto investment from beginner level to advanced level at INDODAX Academy.
After understanding and understanding, you can invest in crypto on INDODAX by first checking today’s crypto prices on INDODAX. Hopefully, this article is useful and happy investing.