Fear and Greed Index (Crypto & Stock)
The Fear and Greed Index utilizes various metrics to gauge the overall sentiment of the stock and crypto market.
It's divided into two categories:
Extreme Fear (0-25) -> Red background
Extreme Greed (75-100) -> Green background
When the index is in the Extreme Fear zone, the indicator background changes to red, while in the Extreme Greed zone, it changes to green.
The blue line represents the Fear and Greed Index for the overall stock or crypto market. The index automatically switches between the crypto and stock depending on the active chart, providing insights into both markets.
The histogram represents Price Momentum for the current active symbol on the chart.
How is the Crypto Fear and Greed Index calculated?
The index is calculated using three factors including momentum of stable coin (safe haven), momentum of major coins, and the balance of unique addresses holding the major coins. The index tracks how much these individual indicators deviate from their averages compared to how much they normally diverge. The index gives each factor equal weighting in calculating a score from 0 to 100, with 100 representing maximum greediness and 0 signaling maximum fear.
The main factors used in the calculation are:
1. Momentum of Stable Coins
The index calculates the momentum of three major stable coins, including USDT, USDC and DAI. The index looks at the stable coins’ levels compared to where they’ve been over the past two months. When the stable coin is below its moving average of the prior 60 trading days, that’s a sign of positive momentum. But if the index is above this average, it shows investors are getting skittish. The Fear & Greed Index uses the growing momentum of stable coin as a signal for Fear and a slowing momentum for Greed.
During a market sell-off, investors may anticipate a decline in the value of their cryptocurrency investments and may transition into stable coins as a safe haven. This is because stable coins are designed to maintain a stable value, often pegged to a fiat currency like the US Dollar.
By analyzing the overall trend of stable coins' movement, the index can help determine whether the market sentiment leans towards greed or fear. If stable coins are experiencing a significant increase in momentum, it may suggest that investors are moving away from riskier assets (like cryptocurrencies) and into safer assets (like stable coins), indicating a fear-driven market sentiment. Conversely, if stable coins are experiencing a decrease in momentum, it may suggest that investors are more confident in the market and are less concerned about potential declines in the value of their cryptocurrency investments, indicating a greed-driven market sentiment.
2. Momentum of major coins
The index calculates the momentum of 16 major cryptocurrencies, including Bitcoin, Ethereum, and BNB. This index assesses the overall trend of these cryptocurrencies' movement, which can provide insights into market sentiment. The index checks how many coins are doing well versus those that are struggling. This shows the number of coins on the market at 2-months highs compared to those at 2-months lows. When there are many more highs than lows, that’s a bullish sign and signals Greed.
By analyzing the momentum of these 16 major cryptocurrencies, the index can help determine whether there's more bullish or bearish sentiment prevailing in the market over the given period. If the overall momentum is positive, it may suggest that investors are more optimistic about the market, leading to increased buying activity and higher prices. Conversely, if the overall momentum is negative, it may suggest that investors are more pessimistic about the market, leading to increased selling activity and lower prices.
3. Balance of unique addresses holding major coins
The index is tracking the number of unique addresses holding Bitcoin and Ethereum. This measure looks at the amount of investors holding Bitcoin or Ethereum and compares the amount to its 2-month moving average.
The logic behind this assessment is that when there are more unique addresses holding Bitcoin and Ethereum, it suggests that more individuals are interested in holding these cryptocurrencies, which may indicate bullish sentiment. Conversely, when there are fewer unique addresses holding Bitcoin and Ethereum, it suggests that fewer individuals are interested in holding these cryptocurrencies, which may indicate bearish sentiment.
How is the Stock Fear and Greed Index calculated?
The Stock Fear & Greed Index is a compilation of two indicators that measure some aspect of stock market behavior. They are market momentum and stock price strength. The Stock Fear & Greed Index calculates how much these individual indicators deviate from their averages and compares this divergence to their typical variations. Both indicators receive equal weighting in calculating a score ranging from 0 to 100.
A score of 100 indicates maximum greediness, suggesting that market momentum and stock prices are significantly above their historical averages.
Conversely, a score of 0 signals maximum fear, indicating that market momentum and stock prices are significantly below their historical averages.
1. Market Momentum
The Stock Fear & Greed index looks at stock market levels compared to where they’ve been over the past few months. When the S&P 500, DJI and NASDAQ is above its moving average of the prior 180 trading days, that’s a sign of positive momentum. But if the index is below this average, it shows investors are getting skittish. The Fear & Greed Index uses slowing momentum as a signal for Fear and a growing momentum for Greed.
2. Momentum of major stocks
The index calculates momentum by analyzing the price levels of major stocks relative to their moving averages over the past six months. When a stock's price is above its moving average of the prior 180 trading days, it indicates positive momentum. Conversely, if the stock's price is below this moving average, it suggests that investors are becoming skittish, or there is a loss of momentum.
How to use the Fear and Greed Index?
The Fear & Greed Index ranges from 0 to 100, a reading of 0-25 indicates extreme fear, while a reading of 75-100 indicates extreme greed. The index can help investors and traders identify market trends and potential turning points. By understanding the sentiment of the market, investors can avoid making decisions based on emotions and biases.
When the Fear and Greed Index is at an extreme level of fear (0-25), it can indicate that investors are overly worried and selling their assets out of fear. This could present a buying opportunity for investors who believe in the long-term potential of the market.
Conversely, when the Fear and Greed Index is at an extreme level of greed (75-100), it can indicate that investors are overly optimistic and buying assets out of greed. This could be a sign that the market is due for a correction.
How is the Price Momentum (Histogram) calculated?
Momentum focuses on the rate of change in stock prices over a specific period. It assesses how quickly prices are moving in a particular direction, whether upward or downward. A momentum value above 50 indicates that prices are fueled by strength to move upward. This suggests that buying pressure is dominant in the market, driving prices higher. Conversely, a momentum value below 50 indicates that prices are fueled by strength moving downward. This suggests that selling pressure is dominant, pushing prices lower.
Our momentum indicator can help investors identify trends and potential turning points in the market. Rising momentum values may indicate an upward trend, while declining momentum values may suggest a weakening trend or a potential reversal.
Extreme momentum values may indicate overbought or oversold conditions in the market. Overbought conditions occur when momentum values are excessively high, suggesting that prices may be due for a correction. Conversely, oversold conditions occur when momentum values are excessively low, indicating potential buying opportunities.
How to use our Fear & Greed Indicator
Using price momentum and the Fear and Greed Index together can provide valuable confirmation signals for investors in the stock or crypto market. Here's how you can use them together:
Identify Trends: Start by identifying the overall trend in the market using price momentum. Rising momentum values often indicate an uptrend, while declining momentum values suggest a downtrend.
Monitor Fear and Greed Index: Simultaneously, monitor the Fear and Greed Index to gauge market sentiment. In an uptrend, high readings on the Fear and Greed Index (75-100) may indicate excessive greed among investors, potentially signaling that the uptrend is becoming overextended and due for a correction. Conversely, in a downtrend, low readings on the Fear and Greed Index (0-25) may indicate extreme fear, potentially signaling capitulation and a possible reversal.
Look for Confirmation Signals: Look for confirmation signals between price momentum and the Fear and Greed Index. For example:
In an uptrend, if momentum is declining while the Fear and Greed Index is at a high level, it may suggest weakening buying pressure and potential exhaustion in the uptrend.
In a downtrend, if momentum is reducing while the Fear and Greed Index is at a low level, it may indicate that selling pressure is subsiding, potentially signaling a reversal in the downtrend.
