Crypto Fear & Greed Score [Underblock]

Crypto Fear & Greed Score - Methodology & Functioning

Introduction

The Crypto Fear & Greed Score is a comprehensive indicator designed to assess market sentiment by detecting extreme conditions of panic (fear) and euphoria (greed). By combining multiple technical factors, it helps traders identify potential buying and selling opportunities based on the emotional state of the market.

This indicator is highly customizable, allowing users to adjust weight parameters for RSI, volatility, Bitcoin dominance, and trading volume, making it adaptable to different market conditions.


Key Components

The indicator consists of two primary sub-scores:

Fear Score (Panic) - Measures the intensity of fear in the market.

Greed Score (Euphoria) - Measures the level of overconfidence and excessive optimism.

The difference between these two values results in the Net Score, which indicates the dominant market sentiment at any given time.


1. Relative Strength Index (RSI)

The indicator utilizes multiple RSI timeframes to measure momentum and overbought/oversold conditions:

RSI 1D (Daily) - Captures medium-term sentiment shifts.

RSI 4H (4-hour) - Identifies short-term market movements.

RSI 1W (Weekly) - Helps detect long-term overbought/oversold conditions.


2. Volatility Analysis

High volatility is often associated with fear and panic-driven selling.

Low volatility in bullish markets may indicate complacency and overconfidence.


3. Bitcoin Dominance (BTC.D)

Bitcoin dominance provides insights into capital flow between Bitcoin and altcoins:

Rising BTC dominance suggests fear as investors move into BTC for safety.

Declining BTC dominance indicates increased risk appetite and potential market euphoria.


4. Buying and Selling Volume

The indicator analyzes both buying and selling volume, ensuring a clearer confirmation of market sentiment.

High buying volume in uptrends reinforces bullish momentum.

Spikes in selling volume indicate panic and possible market bottoms.

Calculation Methodology

The indicator allows users to adjust weight parameters for each component, making it adaptable to different trading strategies. The formulas are structured as follows:


Fear Score (Panic Calculation)

Fear Score = (1 - RSI_1D) * W_RSI1D + (1 - RSI_4H) * W_RSI4H + (1 - Dominance) * W_Dominance + Volatility * W_Volatility + Sell Volume * W_SellVolume

Greed Score (Euphoria Calculation)

Greed Score = RSI_1D * W_RSI1D + RSI_4H * W_RSI4H + Dominance * W_Dominance + (1 - Volatility) * W_Volatility + Buy Volume * W_BuyVolume

Net Fear & Greed Score

Net Score = (Greed Score - Fear Score) * 100


Interpretation:

Above 70: Extreme greed -> possible overbought conditions.

Below -70: Extreme fear -> potential buying opportunity.

Near 0: Neutral market sentiment.


Trend Reversal Detection

The indicator includes two moving averages for enhanced trend detection:

Short-term SMA (50-periods) - Reacts quicklier to changes in sentiment.

Long-term SMA (200-periods) - Captures broader trend reversals.


How Crossovers Work:

Short SMA crossing above Long SMA -> Potential bullish reversal.

Short SMA crossing below Long SMA -> Possible bearish trend shift.

Alerts for SMA crossovers help traders act on momentum shifts in real-time.


Customization and Visualization

The Net Score dynamically changes color: green for greed, red for fear.

Users can adjust weightings directly from settings, avoiding manual script modifications.

Reference levels at 70 and -70 provide clarity on extreme market conditions.


Conclusion

The Crypto Fear & Greed Score provides a powerful and objective measure of market sentiment, helping traders navigate extreme conditions effectively.

🟢 If the Net Score is below -70, panic may present a buying opportunity.

🔴 If the Net Score is above 70, excessive euphoria may indicate a selling opportunity.

⚖️ Neutral values suggest a balanced market sentiment.

By customizing weight parameters and utilizing trend reversal alerts, traders can gain a deeper insight into market psychology and make more informed trading decisions. 🚀