It’s the calm before the storm. What to do if the Fear and Greed Index turns gray Warren Buffett has already told us to be greedy when others are scared. We already know that when others are greedy, we should be afraid. What should we do when the market is in a rare state of equilibrium and expectations are high? We should probably take a page for those bitcoin maximalists and … wait … HODL!
One of the main criticisms of the Fear and Greed Index is that it encourages traders and investors to time the market rather than stay strong. Bad things happen to those who try to time the market. Still we try. The temptation is too strong. Bad things happen to those who act emotionally. Still, some fall into this trap again and again. In fact, one could argue that the Bitcoin and cryptocurrency markets are even more emotional than the traditional ones. And that says a lot.
In any case, before making hasty decisions, we should remember what we are talking about.
The Fear & Greed Index goes into neutral territory | Source: Arcane Research
What exactly is the fear and greed index?
We at NewsBTC deal with it all the time. While the Fear and Greed Index is a criticized and questionable indicator, there is an undeniable connection to the market that is obvious even to the casual observer. When we found a bizarre correlation between the Fear & Greed Index and the UTXO data, we prepended it:
“As a speculative asset, nothing else behaves like Bitcoin. Mood swings lead to extreme price movements. As a result, tools have been developed to monitor fear or greed in the market. ”
The Alternative.me website calculates the main fear and greed index for cryptocurrency markets, they explain its reason as follows:
The behavior of the crypto market is very emotional. People tend to get greedy when the market rises, which leads to FOMO (fear of missing out). Also, when people see red numbers, people often sell their coins as an irrational reaction. With our Fear and Greed Index we try to protect you from your own emotional overreactions. There are two simple assumptions:
Extreme fear can be a sign that investors are too concerned. That could be a buying opportunity.
When investors get too greedy, it means the market needs to be corrected.
We explained why when we described how the Fear And Greed Index can be used as a trigger indicator:
“The mood in the financial markets can almost always be used as a contrary indicator. But in a speculation-driven industry where hype and buzz are more important than fundamentals, this is all the more true. ”
BTC price chart on Bitstamp | Source: BTC/USD on TradingView.com
What does it mean when the mood turns neutral?
After what seemed like years of cold and extreme fear, market sentiment improved a week ago. And while it doesn’t feel like it, this foray into neutral terrain is a huge improvement. As Arcane Research said in their “The Weekly Update” report:
“The Fear & Greed Index has risen rapidly since the end of July and has returned to neutral values for the first time since May. Despite the slight decline in the past few days, the market is sure to be more bullish. This bullish stance is also evident on the futures market. ”
So what should you do now that the mood has become neutral? Little. However, keep your finger on the trigger. Things get interesting.
Featured Image by Kristopher Roller on Unsplash - Charts by TradingView