Firstly, you should remember that all fear and greed index meters are not always 100% accurate. You should use them as information tools rather than for serious financial advice.
That said, we will go through some basic details about what is a fear and greed index, and how you can use it to predict the buy and sell market.
A Fear and Greed Index is a term used to describe the current market sentiment of traders. The index generates a score out of 100 by combining different data.
The cryptocurrency market is very volatile as people are controlled by FOMO (fear of missing out) easily. This makes them act compulsively without thought to any consequences for their actions. The result of these actions is a market that turns quickly based on the emotional mood of the masses.
A Fear and Greed index analyzes this current sentiment within the cryptocurrency market and tells you whether the market is leaning more toward greed (buy) or fear (sell).
Most fear and greed index meters present the emotions and sentiments of Bitcoin and other large cryptocurrencies since they dominate the market. So, when you see the index, remember that they mainly apply to large coins like Bitcoin, Litecoin, Ethereum, and other top altcoins.
Looking at the index, you will notice it ranges from 0 to 100. Over time, the fear and greed index can go from “extreme fear” at 0 to “extreme greed” at 100. This shows the best time to buy crypto and when to sell. The more the index goes to 0 the more people will tend to sell. And the more the index goes to 100 the more people will be inclined to buy coins.
The data for the index is generated from social media trends, Google searches, market momentum and value, market share dominance, and volatility over a period of time (30 or 90 days usually.) All of these factors determine the score of the fear and greed index, which is updated daily.
You can use a fear and greed index for informative purposes to prepare you for upcoming market movement. When greed is at anextreme, traders tend to take their profit in fear that the price will continue to drop in the red. Then when greed is dominant, traders will buy in anticipation of a rise in the crypto prices.