Understanding the Fear and Greed Index in One Article: The Emotional Thermometer of BTC Market

In Cryptocurrency Trading, in addition to looking at Candlestick charts, one must also consider “human sentiment”. Today, let's discuss an essential tool for the crypto community – encryption Fear & Greed Index.

How did this thing come about?

Originating from CNN's stock market sentiment index, it was later adapted to the cryptocurrency space. Now Alternative.me updates it daily, measuring market sentiment with a 0-100 number:

• 0-25: Extreme Fear (Good opportunity to sell)
• 75-100: Extreme Greed (Caution against the bag holders)

How is it calculated? Breakdown into six dimensions

1. Volatility (25% Weight) Comparing the price fluctuations over the last 30 days and 90 days, large fluctuations = strong panic sentiment.

2. Market Momentum + Trading Volume (25%) The higher the trading volume, the more participants there are, and the higher the greed index. Conversely, the opposite is also true.

3. Social Media Popularity (15%) The discussion volume and retweets about BTC on X and Reddit directly reflect FOMO sentiment. This is also where “influencers in the cryptocurrency community” can create false signals most effectively.

4. Market Research (15%) Conduct random interviews with 2000-3000 people every week, asking them about their views on the market. It sounds simple but effective.

5. BTC's Dominance (10%) The larger BTC's share of the entire cryptocurrency market, the more it indicates that retail investors are “huddling together for warmth,” and the fear sentiment is strong. Conversely, the alt season has arrived.

6. Google Search Trends (10%) The number of people searching for “how to buy BTC” increases → Greed surges; The number of people searching for “how to sell BTC” increases → Fear spreads.

What is it used for?

✅ The essential tool for short-term traders: Buy the dip in fear, reduce positions in greed. ✅ Help you think in reverse: When “everyone around is bottom fishing” it might be the top. ✅ Beginner's Tool: Intuitive Understanding of Market Sentiment Cycles

But there are also pitfalls

❌ Only suitable for short-term operations, not much use for long-term holding. ❌ Only looking at BTC, ignoring the performance of Ethereum and altcoins. ❌ Not understanding the power of the mining halving cycle will cause you to miss the rise after the halving. ❌ Social media data can easily be manipulated by influencers (beware of pump&dump traps)

Summary

This tool is at most a reference, not the Bible. The real logic for making money is:

1. Look at the index to understand the overall direction
2. Verify with fundamentals and technicals
3. Make decisions based on your own risk tolerance.

Blindly Following Index = Blindly following the trend, or it’s important to DYOR (Do Your Own Research).

Update Frequency: Once a day, can be viewed in real-time on Alternative.me