How to Interpret the Fear and Greed Index
There are various indices / indicators in order to understand the situation in the markets, to see in which direction the investor psychology moves and in what situations this psychology begins to deteriorate. The Fear & Greed index is one of the most important. Fear & Greed is an index that measures these two emotions that have the most intense impact on investment decisions. When market volatility begins to increase, investors become anxious and afraid, or they may increase their risk appetite and attempt to trade based on greed. When there is an overselling movement in the market in this index, it is followed by fear and extreme fear; When it moves in the direction of excessive intake, it interprets it as greed and excessive greed. The Fear & Greed index was originally invented by CNN Money and is used in many different markets. It has also been adapted to the crypto market by alternative.me. The index is calculated by considering 7 factors. These factors are; volatility (25%), market momentum and volume (25%), BTC’s market dominance (10%), social media analytics (15%), surveys (15%), and Google Trends data (10%). The index calculated according to these factors takes a value between 0 and 100. Although 50 is considered a neutral level, it shows that fear dominates the market as it approaches zero, and greed dominates as it approaches 100. However, if the index falls below 20, it is considered excessive fear, and if it rises above 80, it is considered excessive greed. Especially after the World Health Organization’s COVID-19 pandemic announcement, the Fear & Greed index began to be followed thoroughly. The index, which fell to 10 levels on March 13, showed the dominance of extreme fear in the market. Meanwhile, Bitcoin prices fell from $ 8,000 to $ 3,500 levels in 2 days and saw the lowest level of 2020.
The Fear & Greed index, which rose to the upper levels with the decrease in the impact of the pandemic process on the markets, reached the level of extreme greed with the rapid rise of many coins or tokens, especially in the DeFi sector, and continued to be in this area last month. On August 11, when the highest level of extreme greed of 2020 was seen, the index rose to 84 levels and BTC prices rose to $ 12,000.
However, when US President Donald Trump announced on Twitter that he and his wife were COVID-19 positive, there was an atmosphere of anxiety in the market and the Fear & Greed index began to fall. The index is currently hovering around 42.
