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The cryptocurrency market is very emotional. When the market is going up, people become greedy, which creates FOMO (fear of missing out). When the market is going down, people sell their coins in panic. The Fear and Greed Index is an index or tool that analyzes these human emotions in the market and gives a mathematical form. Simply put, it tells you whether investors are currently afraid or excessively greedy.

1. Index Scale

This index works on a scale of 0 to 100. Each number expresses a specific state of the market. 0 - 24 (extreme fear), this means that investors are extremely fearful. This usually indicates that the market is 'oversold' and the price is likely to increase from here. 25 - 49 (fear), there is some fear or uncertainty in the market. 50 (neutral), the market is stable or neutral. 51 - 74 (greed), investors are becoming greedy, there is a lot of buying. 75 - 100 (extreme greed), the market is in extreme excitement. This indicates that the market is 'overbought' and a major decline or 'correction' may soon come.

2. How is the index created? (data sources)

The current price movement is compared to the average movement of the last 30 or 90 days. Abnormal fluctuations mean that panic is increasing in the market. And if there is an increase in daily buying with high volume, it is considered that the market is becoming excessively greedy or bullish. Twitter (x) is the most analyzed social media. Emotions are measured by looking at the use of specific hashtags and the movement of people's posts. Bitcoin Dominance (dominance - 10%), when Bitcoin's dominance increases, people usually get scared and move money from altcoins to Bitcoin. Google Trends (google trends - 10%), analyzes what people are searching for on Google (e.g. "Bitcoin Price" or "How to sell Bitcoin"). (Note: Previously used 'survey', which is now discontinued.)

3. Its Importance for Investors

A famous quote by renowned investor Warren Buffett is the basis of this index. "Be fearful when others are greedy and greedy when others are fearful." When the index shows Extreme Fear, many experienced traders see it as a "Buying Opportunity" because prices are very cheap. When the index shows Extreme Greed, it's time to be cautious. This means that the market can crash at any time, so it may be wise to book profit (profit taking).

4. Some limitations

Short-term indices are mainly good for daily or weekly sentiment, but are not a substitute for long-term fundamental analysis. And sentiment alone will tell you what people are thinking, but it does not guarantee that prices will go up or down. Sometimes the market can go up month after month even in a state of 'Extreme Greed'.

Conclusion

The Fear and Greed Index is an excellent compass for understanding market psychology. This helps you make informed decisions without going with the crowd. However, it is always necessary to do your own research (DYOR) and look at technical charts before investing. Today's discussion concludes here. I hope you've found it interesting. Please share your thoughts on today's topic. Prayers for everyone. May everyone be well. Amen.

Me behind the camera & keyboard

I’ve always loved sharing my passions with you — from crypto and movie reviews to photography, storytelling, and blogging. Now, continuing that creative journey, I’ve stepped into a brand-new world — Gaming ! 🎮 | 🎥 On my YouTube channel Bokhtiar The Survivor — I’m consistently working to bring you the raw thrill of my gaming experiences — the emotions, the excitement, and those unforgettable moments that make every game feel alive.