Fear and Greed Index: The "psychological thermometer" of the crypto market

Why do some people buy the dip when Bitcoin experiences a big dump? While the market is crazily pumping, why are Crypto Veterans reducing their positions? The secret lies in the Fear & Greed Index.

What is the Fear and Greed Index?

In simple terms, it is a number between 0 and 100 that reflects the current emotional state of the crypto market:

• 0-24 points (Extreme Fear): The market is experiencing a big dump, retail investors have a buy the dip opportunity.
• 25-49 points (Fear): Investors are cautious and mainly observing.
• 50 points (Neutral): The market is lukewarm.
• 51-74 points (Greed): Funds are pouring in, FOMO sentiment is soaring.
• 75-100 points (Extreme Greed): The bubble is about to burst, be careful.

How is this index calculated?

Alternative.me (official data source) is made up of 6 dimensions:

For example: Suppose the data is like this on a certain day—

• Volatility: 20 minutes × 25% = 5
• Trading volume: 75 points × 25% = 18.75
• Social Media: 70 points × 15% = 10.5
• Dominance Rate: 30 minutes × 10% = 3
• Google Trends: 25 minutes × 10% = 2.5

Total Score = 5 + 18.75 + 10.5 + 3 + 2.5 = 39.75 points (Fear Zone)

This signal usually means: there are Crypto Veterans buying the dip, which could be a good buying point.

How to make money with it?

short-term trading combined with technical analysis

Don't operate blindly with this index alone. It should be combined with old friends like RSI and MACD:

Scenario: BTC falls from 52K to 45K, the Fear and Greed Index drops to 20 (Extreme Fear)

• Check RSI < 30 (oversold signal)? ✓
• Check if MACD shows a bottom divergence?✓
• Multiple signals resonate?✓

→ Enter the market at this time, wait for the rebound.

A suggestion: Don't use it to predict the long-term market.

This index is particularly good at capturing short-term emotional fluctuations (daily level), but to predict the transition between bull and bear markets? That requires looking at fundamentals, policies, on-chain data, and so on. Relying solely on the fear and greed index to predict the market conditions six months later is basically gambling.

Where to view the data?

• Alternative.me: Authentic, only follows BTC
• CoinMarketCap: The newly launched version covers the entire market (including coins other than BTC)

Three Steps to Trade

1. Write a good trading plan: Clearly define when to enter, when to exit, and how much to stop loss. Emotions are your greatest enemy.

2. Keep a Trading Journal: Write down each trade, noting why you made a profit or a loss. After a month, when you look back, you'll be able to identify your patterns.

3. Learn from the Crypto Veterans: Strategies shared by the veterans on forums/Twitter that you can use right away (but make sure to verify them yourself).

Last sentence

The Fear and Greed Index is a good reference tool, but it is not a magic finger. Use it as a compass in your trading toolbox, combined with technical analysis and risk management, to survive longer in the crypto space. Remember: do not go all in when there is extreme fear, and do not chase highs when there is extreme greed. Balance is the key.