Crypto trading is a widespread way of making money online. In simple terms, trading means profiting from crypto coins’ price changes by buying and selling crypto assets using a crypto exchange. There are various patterns and schemes on how to trade efficiently, for example:
- daily trading;
- scalping;
- arbitrage;
- swing trading;
- and others.
To succeed in cryptocurrency trading, thorough knowledge of strategies is needed as well as experience. Also, you should understand what affects crypto prices and react to those changes immediately.
However, regardless of the solid strategy, you might select for your trading, it may happen that the market sharply moves the opposite way, ruining all your plans. It may happen due to investors’ sentiments changing (greed, panic, etc.). Investors apply the fear and greed index to keep control of the situation and have a real picture of what is going on in the market. Let’s discuss this phenomenon and its role in deciding to exchange cryptocurrency for traders.
The Meaning of the Index
The index helps analysts assess the present market situation and understand how investors feel about this or that digital coin. The index ranks from 0 to 100. The lower the indicator, the bigger fear; the higher indicator, the bigger greed.
Here is a scale for a better understanding:
- 0-24 stands for “extreme fear”. People get rid of their holdings massively.
- 25-49 stands for “fear”. The majority of holders sell coins and leave the market.
- 50-74 – this indicator represents “greed” – the asset is actively bought, stimulating price growth.
- 75-100, accordingly, means “extreme greed” – investors massively buy crypto. The danger of creation of a “bubble”.
The index helps investors make weighted decisions on the next steps in their trading strategy. However, experts find many limitations in it; for instance, the index works with BTC and does not solve the same task for other digital coins.
Another drawback is that there is no exact formula for calculating it. At the same time, such information would be precious to those who make trades on cryptocurrency exchanges.
