How to use market sentiment to determine whether the subsequent market will rise or fall?
With BTC's recent brief drop below the $60,000 mark, market sentiment took a 180-degree turn overnight, from 75 greed a week ago to 40 fear.
Since many people are talking about this index, let's analyze it thoroughly today to see what guidance the market sentiment index has for trading?
First, we need to understand how the index is calculated.
It is calculated through 5 main weights:
1. Volatility: The current volatility of BTC prices relative to the past 30 and 90 days. Abnormal increases in volatility can sometimes be a sign of excessive fear in the market.
2. Momentum and volume: Relative to the momentum and volume of the past 30 and 90 days, abnormally high buying volume relative to the past 30 and 90 days may indicate that the market has become too greedy, and vice versa.
3. Social media: By analyzing sentiment on social media, we can see the type and amount of sentiment at a specific time relative to historical standard speech.
4. BTC dominance: Bitcoin's advantage over other cryptocurrencies.
5. Google Trends: Determine the strong growth or decline period of Google search through the Google Trends of a series of related Bitcoin search terms.
After understanding the above information, we can further understand the reasons for the changes in the fear and greed index.
Obviously, the main reason for the current BTC 30 fear index is not 1 and 2, because its volatility and trading volume have not increased significantly at the weekly level, so the factors that are more likely to affect the index should come from 3 to 5.
Social media data cannot be obtained accurately, but most retail investors in the market are not extremely panicked now, but there are many bottom-fishing.
Google Trends has maintained a small increase and has not changed significantly.
Then the main change can only appear in BTC’s dominance rate. When the price plummeted the day before yesterday, many people found that altcoins did not follow the decline at all, which caused BTC’s dominance rate to begin to decline sharply, falling by nearly 4% from its local high. You must know that considering the market value of cryptocurrencies, a 4% drop is indeed not a small number!And this may be the main reason for the rapid decline in the Fear and Greed Index.
