Changpeng Zhao: Fear And Greed Are Two Emotions That Traders Must Master
Changpeng Zhao, founder, and CEO of the cryptocurrency exchange Binance, recently tweeted that traders must be able to control both fear and greed to be successful.However, this does not imply that overcoming fear and greed is a simple process since, if it were, no market indicator measuring the two emotions that have the most impact on trading choices would have ever been developed.
Understanding the Fear and Greed Index: A Guide
Fear and greed are two powerful emotions that significantly impact the actions of market players; as a result, they accurately represent the perspective of the vast majority of market participants. Fear that cannot contain causes traders to sell their assets in a frenzy, sometimes at a loss, exacerbating the downward price pressure. Conversely, unbridled greed is the primary cause of many market bubbles, which almost always culminate in a market collapse. The technique is repeated forever.
Bitcoin Fear and Greed Index is 27. Fear
Current price: $20,207 pic.twitter.com/hTvmebxKLl
— Bitcoin Fear and Greed Index (@BitcoinFear) September 14, 2022
The fear and greed index was developed to assess at any time which emotion influences market sentiment. It is a number between 0 and 100, with 0 indicating the highest degree of fear and 100 indicating the highest level of greed. Strictly speaking, it is a composite of several separate indicators, each evaluating a departure from its average value.
As cryptocurrency exchanges may develop their versions of the fear and greed indexes, you can utilize the version published as an alternative if you want to err on caution. Numerous of the industry’s most influential participants subscribe to this version. Me.
It is derived from the CNNMoney Fear and Greed Index for financial markets and integrates several variables, including volatility, volume and market momentum, social media, dominance, and trends. In the past, the index computation also included the survey measure; however, that data is not utilized now.
The indicator indicates whether Bitcoin investors are motivated by greed or fear. Nonetheless, as the whole cryptocurrency market closely follows the flagship coin in terms of price and mood, it is conceivable to use it extensively throughout the entire landscape.
The Fear and Greed Index measures whether the market is now oversold or overbought. For instance, if fear overcomes greed (representing a score between 0 and 49), this may indicate that assets are becoming more affordable, which might act as a buy signal. A greedy attitude, on the other hand, may suggest that the cryptocurrency market has already reached the overbought zone, indicating that it is time to sell.
The Fear and Greed Index is an example of a contrarian indicator that detects market mood extremes. Due to the market’s tendency to overreact in the short term, these extremes may be seen as entry and exit positions and potential market tops and bottoms from which the market begins to move in the opposite direction.
The Science of Balancing Anxiety and Drive
Fear is the opponent of situational mastery in a single word. Fear is a reaction when we sense danger, but greed is a response when we recognize an opportunity. Once dread has taken hold of us and begun to circulate throughout our bodies, we cannot stop it. In other words, if you feel in control of the situation, you will not experience fear and vice versa.
Once you give in to your anxiety, regardless of whatever preparations you may have made previously, you will find a thousand reasonable reasons to act in a manner that is consistent with your fears. This almost surely results in a monetary loss. Understanding this unpleasant fact is the first and most crucial step in adequately managing such a powerful emotion.
It is general knowledge in the world of trading that you should never risk money you cannot afford to lose. If you are unconcerned about the possibility of losing the money you invested in an asset, you are essentially immune to the worry that the asset’s value may drop. Even if you cannot manage your fear, there are safeguards you can take to avoid it from overtaking you. It may be seen here.
Is it not the case that prevention is superior to treatment? Nonetheless, it is already rather lavish on its own. You do not need to take such drastic action. In general, you may avoid situations that will cause you to break out in a cold sweat by establishing the risks you are willing to tolerate, followed by an accurate assessment of the types of returns you can expect from your assets.
It is possible to exert far greater control over the feeling of greed. And to be clear, the desire for wealth will not ultimately destroy you. When you give in to your greed, you run the chance of experiencing the dread and tragic results associated with it. The market turns against you instantly and delivers a backhand blow.
An essential awareness that a bull trap always follows every bull run is all that is required to control your greed and maintain vigilance. In a way, when you direct your greed, you also control your fear. This is the case because greed and fear are interconnected emotions.
Several Concluding Remarks
Managing your emotional experiences of greed and anxiety is necessary but insufficient for trading success. In addition, you must be able to profit from the greed and terror of others. As a trader, one of the most important things you can do is develop a practice of monitoring the market’s state and keeping an eye out for shifts in the overall levels of fear and greed.
Even if just because everyone is looking out for their financial interests in any market, especially the bitcoin market.