The Fear and Greed Index

Few tools are as essential to trading as the Fear and Greed Index. The Fear and Greed Index allows traders to easily determine the public perception of an asset with just a glance. In this piece, we will be looking through the different analytics which make up the Fear and Greed Index!

Fear and Greed Basics

The Fear and Greed Index is the most predominant tool for new traders, as it combines a variety of different analytics into one easily understood diagram. The Fear and Greed Index was originally created to analyze assets within the stock market; however, the traditional Fear and Greed Index has a counterpart, specifically designed to monitor cryptocurrency. The Cryptocurrency Fear and Greed Index is measured by a combination of two technical indicators and three sentiment analysis analytics:

• Market volatility

• Trading volume

• Sentiment on social media platforms

• The Bitcoin dominance chart

• Google search trends

The Cryptocurrency Fear and Greed Index combines the data from each of these factors, in order to determine the overall public opinion of specific cryptocurrency assets. for example, a cryptocurrency asset expressing high market volatility, low trading volume, bad publicity on social media platforms, an increase in Bitcoin dominance, and a low number of search SEO keywords is indicative of fear in the cryptocurrency markets. Consequently, low market volatility, high trading volume, positive sentiment regarding crypto on social media, a decrease in Bitcoin dominance, and an increase in crypto related SEO keywords is often indicative of bullish price action. The Cryptocurrency Fear and Greed index rolls all these variables into one concise measurement. For this reason, the Fear and Greed index is incredibly valuable to traders. The ability to determine if the market is being driven by either fear or greed by looking at one specific index makes it easy for traders to understand the psychology of the market.

Sentiment Analysis and the Fear and Greed Index

Sentiment analysis is the basis of the Fear and Greed Index. Technically speaking, sentiment analysis is a topic of study which aims to define the general sentiment of the public opinion surrounding a wide variety of subject material. Sentiment analysis defines whether the general sentiment of public opinion is either positive or negative. For this reason, sentiment analysis is able to play a pivotal role in trading.

Sentiment Analysis History

Sentiment analysis has been around for as long as written language itself, however it did not become a component of linguistic studies until the 1950s. At this point, linguistic translators realized sentiment analysis could be a highly effective tool for global communication. By the time machine learning came around, sentiment analysis became a crucial tool in the development of translation software.

Sentiment Analysis and Social Media

When social media was first introduced, it immediately gained traction. The internet went from being a research tool, to the hub of social interaction. Websites like Facebook, Twitter, and even Myspace enticed an exponential amount of individuals to freely share their opinions – on virtually every topic – with countless other internet users. This created the continually expanding cornucopia of opinion-based data which circulates the internet today. As sentiment analysis is a measurement of public opinion, social media has become a crucial component of many sentiment analysis-based indicators.

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