Secrets of Crypto Sentiment Analysis
Have you ever wanted to know how the sentiment analysis indicators work? Most cryptocurrency traders know of these tools but few understand the mechanics and logic behind them. But anyone who plays the alt coin market can sharpen their skills and increase the potential for earning a profit by digging into the components of the most popular sentiment analysis measures, namely the fear & greed index in financial reporting. What’s the best way to begin if the idea of sentiment analysis is brand new to you? Step one is taking a closer look at the fear & greed components and understanding what each one is meant to reveal about the state of the market.
F&G is the Leading Tool
The ever-popular fear and greed index for cryptocurrency is actually a direct copy of the same measurement that’s used for the traditional securities markets. The idea has been around for decades and offers keen insight into any realm of economic activity that you choose to use it for. With crypto, it measures five specific areas in order to gauge how high the overall level of fearfulness or greed is at any given time.
When alt coin traders are fearful, they are thought to be ready to pull out of the crypto marketplace and put their money elsewhere. Likewise, when they’re greedy, it’s said that they want to purchase as much cryptocurrency as they can get their hands on. What do high levels of fear and greed mean for upcoming price levels? Logically, it would mean that demand for alt currencies would decline in an atmosphere of fearfulness, and that it would do the opposite when greediness takes over.
B&B Techniques are Worthwhile
A secondary method for those who want to learn how to trade cryptocurrency is the B&B, or bull and bear. It’s unique in a number of ways, so be careful not to assume that B&B is just another version of the fear and greed indicator. For example, the bull and bear measures only the social media confidence level surrounding bitcoin, not any other coins. Plus, as implied, the B&B only uses social media linguistic content analysis, and no other economic data.
The Five Parts of the Fear and Greed Indicator
Keep in mind that fear and greed runs from a low of zero to a high of 100, with the range of zero to 50 indicating fearfulness and low demand for crypto, in general. Scores above 50 are said to reveal high degrees of greed, or demand. What causes fear and greed to be low (showing fearful attitudes) are volatility of the market at any given time, and the degree to which bitcoin dominates the alt coin space. And, factors that cause the indicator to be high (showing greediness) are total trading volume, popularity of terms like crypto in search engines, and aggregate social media sentiment.
Stock Market Data is Revealing
Traders in the cryptocurrency space should continue to keep an eye on stock market indicators. Having a feel for how the traditional securities markets are performing can help you understand why some institutions might pull out of alt currencies and put their money into stock shares, or when they might do the opposite.