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Month: October 2021

How to Measure the Bitcoin Fear and Greed Index

Do you ever think about why the cryptocurrency market is so volatile? Well, one of the main reasons behind it is people’s emotions. Most of the time, investor’s emotions drive the market. When they see the market doing good, they keep investing more and more money, leading to a strong bullish atmosphere. Similarly, when they know the market is moving downward, they panic and liquidate their investments, leading to sharp falls.

In this article, we have covered questions about the Bitcoin fear and greed index and how to measure it. Having awareness of the fear and greed index will be beneficial for you to control your emotions.

Let’s get started!

What Is the Fear and Greed Index?

The crypto fear and greed index is a measurement that assigns a score to crypto market sentiment ranging from 0 to 100. The fear and greed index was designed by CNNMoney (a popular financial news and information website) to evaluate market emotion for equities and shares. Since then, Alternative.me (a popular software comparison website) has customized its version for the cryptocurrency market.

Fear (a score of 0 to 49) suggests that the market is undervalued and oversupplied. Greed (a score of 50 to 100) indicates that cryptocurrencies are overvalued and may be amid a bubble.

When deciding whether to enter or depart the crypto market, seeing fluctuations in the amount of fear and greed might become part of your trading strategy.

How Does the Fear and Greed Index Work?

The index shows a value based on various market trends and indicators. Currently, it uses only the information related to Bitcoin (BTC). They’re just using Bitcoin data because of its biggest market capitalization and sentiment correlation with the rest of the market. There are discussions to include other significant cryptos such as Ethereum (ETH) and Cardano (ADA). Index readings are divided into four major parts.

  • Extreme Fear: 0 – 25
  • Fear: 26 – 50
  • Greed: 51 – 75
  • Extreme Greed: 76 – 100

Extreme fear is a symptom that investors are very concerned about their assets’ value decreasing. The tremendous panic among investors, on the other hand, could indicate a buying opportunity. Similarly, when investors are overly greedy, the market is due for a correction.

How Is the Crypto Fear and Greed Index Measured?

The data come from the crypto fear and greed index, which combines five major market elements. To illustrate significant progress in the crypto market’s attitude change, each data point is valued the same as the day before.

Volatility

Volatility accounts for 25% of the index. It is calculated by comparing Bitcoin’s current price with the averages of the last 30 days and 90 days. Volatility reflects the fear in the market. When volatility rises sharply, it could suggest that the market is afraid.

Market Momentum/Volume

The other biggie is market momentum/volume, which accounts for 25% of the Bitcoin fear and greed index. This method compares Bitcoin’s current trading volume and momentum against 30- and 90-day averages, then adds the findings. This is often used to describe excessive bullishness or greed in the market.

Social Media

Social media accounts for 15% of the index. In calculating the crypto fear and greed index, the social media aspect is quite crucial. The social media indicator is based on sentiment analysis of likes, postings, the number of tweets tagged with specific hashtags (most notably #Bitcoin), and how users tweet with that hashtag. 

Greedy market conduct is associated with a higher-than-normal interaction rate. They are also working on including Reddit in this.

Dominance

Dominance receives 10% of the index. The market cap share of the entire crypto market mirrors a coin’s dominance. The surge in Bitcoin supremacy is primarily due to a fear of investing in more dangerous alt-coins, as Bitcoin is increasingly becoming the safe haven of crypto. 

On the other hand, as Bitcoin’s dominance declines, people get more greedy, investing in more risky alt-coins in the hope of profiting from the next great bull run. In any case, studying dominance for a coin other than Bitcoin could lead to the opposite conclusion since increased interest in an alt-coin could indicate bullish/greedy behavior for that coin.

Trends

Trends cover 10% of the Bitcoin greed and fear index. The emotional behavior of the market can be deduced from Google trends data for Bitcoin-related searches. If the number of searches for “Bitcoin as legal tender” rises, this indicates market greed. This provides a broad indication of how many people are interested in a particular asset.

You should notice all these five indicators cover only 85% of the index. Surveys have completed the missing part.

Surveys

Surveys impact 15% of the index. However, this component is not currently taken into account when calculating the crypto fear and greed index. Surveys use straw polls (a public pooling platform) to conduct weekly cryptocurrency polls and ask people how they see the market. 

Typically, each poll will receive between 2,500 and 3,500 votes, giving a good idea of how a group of crypto investors feels. Don’t pay too much heed to its outcomes, but they were helpful at one point. There are no particular reasons for why this is paused and how the distribution is updated in the survey’s absence.

Conclusion: Crypto Fear and Greed Index

The Bitcoin fear and greed index is a quick and easy approach to compile and summarize various fundamentals and market sentiment indicators. If you want to calculate it, you must rely on multiple indicators, including Bitcoin dominance, trends, volatility, volume, social media, and many others. This index provides the value by dividing equal portions for each indicator according to its importance. It helps you control your emotions and make better decisions regarding the crypto market.

Advantages and Disadvantages of Automated Crypto Trading 

The crypto market is highly volatile, which leads to regular pumps and dumps. In this environment, automated trading is the best way to book good profits. If you are interested in automated crypto trading, then this article is for you. It covers the main advantages and disadvantages of crypto trading automation. 

Let’s jump into it.

What Is Crypto Trading Automation?

Crypto trading automation is a technique that allows you to enter and exit precise market positions without continuously monitoring your computer. Predesigned trading systems do most of the job for you with the help of scenarios. You just need to choose a scenario or design one according to your plans and apply it. 

In other words, a crypto trading system executes orders at a crypto exchange you choose, depending on your trading scenario. Trades can be executed based on asset price, technical indicators, or the percentage of your portfolio’s worth. This significantly lowers your risks and gives you a competitive advantage over manual traders.

Pros and Cons of Crypto Trading Automation

Take a closer look at the major pros and cons of automated cryptocurrency trading.

Pros of Automated Trading

  • Better Timing: Crypto trading scenarios are sophisticated algorithms that can complete trades considerably more quickly than humans. As a result, trades are executed with pinpoint accuracy on the trading algorithm’s exact value. Getting into or out of a trade a few seconds earlier can significantly impact the result of the trade.

Slippages (the difference between the planned price and the price at which the trade occurs) are common in crypto trading because of volatility. These system slippages are eliminated with algorithmic trading.

  • No Emotions Involved: Investors are human beings who experience various emotions about a particular asset. Traders might easily panic, become overconfident, or have FOMO (fear of missing out) on a lucrative asset. Emotions influence your decision-making and can lead to mistakes in judgment and poor decisions, resulting in trades being closed at a loss, reaching a stop loss, or liquidating.

One of the key advantages of employing a crypto trading scenario is that it has no emotional attachment to the trade and enters or exits depending on market conditions rather than a gut sense.

  • Opportunities for Backtesting: Backtesting is the process of putting various trading algorithms to the test using historical market data. This is done to assess the plan’s effectiveness. Traders can use past data to evaluate these specific sets of rules before risking money in actual trading. You may utilize historical market data to test whether a trading plan would work based on previous results instead of guessing and perhaps losing money.

An automated crypto trading system can perform this time-consuming task quickly and accurately.

  • Simple Investment: For new investors, understanding blockchains and cryptocurrency may be a bit difficult. They struggle to comprehend complex charts, data analysis, price analysis, and the latest news. Crypto trading scenarios eliminate the need for users to stare at their displays the whole day. You just sign up, choose trade patterns, and let the algorithms handle the rest.

Cons of Automated Trading

  • Over-Optimization: The main risk of employing automated trading systems is that traders may fall into the trap of over-optimizing their strategies to find the best ones. They can make constant adjustments to their plans to reach 100% profit.

When this happens, your strategy is said to be “over-optimized,” which means it’s too complicated for the system to implement in the actual world; it looks nice on paper but doesn’t perform as predicted on the live market.

  • Still Require Monitoring: Automated trading systems are intended to be utilized while you are away from your computer. If something unexpected occurs (system quirkiness, connectivity troubles, power outages, or computer breakdowns), it can cause erroneous, missing, or duplicate orders, which in turn can result in a minor or huge loss.
  • Security Issues: Using crypto trading systems is generally regarded as secure, particularly the DeFi model, which is hosted on the blockchain and executed through smart contracts. It is, however, still vulnerable to security breaches as a result of hacking. So, always read customer comments and reviews. 

Let’s check out one such automated crypto trading system. 

How to Automate Your Crypto Trades

Obolon9 is a safe and secure automated cryptocurrency trading system with pre-designed scenarios (plus configurable scenarios). This system offers the best of both worlds by combining the flexibility of manual trading with the attentiveness and accuracy of pre-designed scenarios.

Summary

Automated trading systems are designed to help you achieve better trade timing, non-emotional behavior, and backtesting. Sometimes, due to certain conditions, such systems are not able to provide guaranteed results. You have to decide on your own, by keeping both sides in mind, whether you should go for automated crypto trading or not. Obolon9 is a safe and secure system to automate your cryptocurrency trades.

 

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