What is the Bitcoin Fear And Greed Index – And Does it Work?
Using analysis of investor sentiment to predict when is a good time to buy or sell investment assets is nothing new.
In 1993, the Chicago Board Options Exchange created the CBOE Volatility Index (VIX). This is a tool that measures market risk, by analyzing recent price inputs of the S&P 500, together with general investor sentiments.
Shortly after the launch of the VIX, CNN Money created their own Fear & Greed Index (FGI). Like the VIX, the FGI attempts to measure investor emotions of fear and greed, before extrapolating what general sentiments might mean for short and long-term stock prices.
The VIX and CNN’s Fear and Greed Index work on the premise that greed and strong investor confidence help drive up stock prices.
When investors are more fearful that markets are about to correct or dip lower, the VIX and FGI assume that stock prices will fall.
In both cases, the VIX and FGI use a simple speedometer-like chart to show investors which direction stock market sentiments seem to be leaning in on a daily, weekly, and monthly basis.
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