Fear and Greed Index: what the market breathes, where the wind blows

Oh, these emotions in the crypto market! How many times have I fallen victim to my own greed, buying at the peak, or trembled with fear, not daring to log in to the market after a crash. Familiar, right? That's why I decided to delve deeper into the so-called "fear and greed index" — a tool that supposedly shows the crowd's sentiment.

What kind of beast is this?

The Fear and Greed Index is a numerical indicator from 0 to 100, where zero means that everyone is panic-selling assets ( type "every man for himself!" ), and a hundred means that everyone is crazily buying everything up.

I look at this scale and remember how in March 2020 the index fell to two. At that time, like many others, I was watching the falling Bitcoin and thought: "That's it, the end has come for cryptocurrencies." But that was the perfect moment to buy! Yet fear paralyzed me.

How do they calculate this?

Interestingly, this "magical" index is composed of various components:

• 25% — volatility ( price is jumping — means it's scary )
• 25% — trading volume (many trade — hoard)
• 15% — social networks ( what are they saying on Twitter )
• 10% — Bitcoin dominance ( everyone is rushing to BTC — afraid )
• 10% — search queries on Google

It's funny that the creators of the index think they can measure my emotions by my Google searches! Although, to be honest, when I panicked and searched "why is bitcoin falling" last year, they weren't entirely wrong.

Where can I check this index?

There are several websites where you can check the current values:

• Alternative.me — a classic of the genre
• CoinMarketCap - the same place we check prices
• CoinStats — updates every 12 hours

I couldn't find it directly in TradingView, but skilled people write scripts for integration through the API.

How I use this index

When everyone is in a panic ( index below 25), I start to consider buying. I check the charts on the hourly and four-hour timeframes, looking at RSI and MACD for confirmation.

When the market is euphoric ( and the index is above 75), I think about taking profits or even shorting if I see overheating on the charts.

I remember November 2021, when the index surpassed 80, and Bitcoin broke $60 thousand. Everyone was shouting about $100 thousand by Christmas. And I, looking at the index, decided to lock in some positions. I won't say I sold at the very peak, but I was close.

Why this index sometimes lies

Don't think of it as a magic wand. The market can remain in a zone of fear or greed for months. For example, in 2022 we spent almost half a year in "extreme fear," and every purchase during that period seemed successful only until the next drop.

I don't trust this index as the only signal. I use it more as context — if I see a technical buy signal and the index is in the fear zone, I feel more confident.

Practical tips from an experienced person

• Don't blindly trust the index. Technical analysis and news are no less important.
• Test your strategies on a demo account or with small amounts
• Set stop losses! Especially if you are trading with leverage.
• Analyze historical data - how the index related to the price in the past

The Fear and Greed Index is just one of the tools that helps me understand when the majority is wrong. After all, in the market, the one who goes against the crowd often wins. When everyone is in a panic — buy, when everyone is greedy — sell.

At the end of the day, the most difficult task is to control your own emotions. No index will save you if you succumb to the general panic or euphoria.