hallo, steemians we meet again on homework for the 5th week in this 4th season of Steemit Crypto Academy. This time I will make a post for the homework that has been given by prof @wahyunahrul. The task this time is to answer several questions that have been given by the professor about the fear and greed index.
HOMEWORK LIST:
1). Explain why emotional states can affect cryptocurrency price movements.
2). In your personal opinion, is the Fear and Greed Index a good indicator of the market's emotional state? if not, try to give reasons and examples of other similar indicators for comparison.
3). Give your personal opinion on what data should be added to the Fear and Greed Indicator.
4). Do a technical analysis for 2 to 3 days (maybe more) using the Feer and Greed Index and the help of other indicators. Show how you decided to enter the cryptocurrency market and explain the results of your trade (Screenshot Required).
Explain why emotional states can affect cryptocurrency price movements
Prices in a market are always changing which is influenced by supply and demand. This applies to all types of markets without exception be in stock, forex, even crypto, and any other market. supply always comes from sellers and demand comes from buyers in the market.
In general knowledge in the trading world, if the seller (supply) is more than the buyer (demand) then the sellers must lower the price of what they are selling so that the price of what is sold can be accepted by buyers more quickly because buyers will be looking for the cheapest price that can be obtained from the seller. And vice versa, if demand (buyers) is more than supply (seller) then the price will be higher, more things are demanded than available in the market to buy and of course, the sellers will increase the price because there is less stock provided.
The thing that makes supply and demand always change is based on the nature of market participants, namely humans. Every human being has the nature of fear and greed, these two traits have a big influence when market participants are conducting transactions in a market. the fear of loss and the greed of how much profit can be obtained by trading make supply and demand will always change and cause prices to not move in only one direction.
In your personal opinion, is the Fear and Greed Index a good indicator of the market's emotional state? if not, try to give reasons and examples of other similar indicators for comparison
In my personal opinion, the fear and greed index is an indicator that is very helpful in analyzing price movements that will occur in an exchange market, I think so because prices are always changing due to the behavior of fear and greed of market participants.
This indicator is also very good because the data provided comes from 100% of the 6 data sources that have been put together and provide data that we can see from the indicator, the 6 data sources for the fear and greed indicator are:
1) Market Volatility (25%)
2) Market Volume and Momentum (25%)
3) Social Media (15%)
4) Survey (15%)
5) Coin Dominance Against Cryptocurrency Market (10%)
6) Trends (10%)
However, no matter how good the indicator is, it will not always be accurate and cannot be used alone. Therefore, this fear and greed index must still be used in conjunction with other technical indicators and traders must find the confluence between this fear and greed indicator and other indicators that you usually use in technical analysis.
Give your personal opinion on what data should be added to the Fear and Greed Indicator
In my opinion, additional data that needs to be added to the fear and greed indicator is the timeframe, if we go to alternative.me to see the fear and greed indicator then we can only get data from 1 week, 1 month, 3 months, and 1-year timeframes. the data for the timeframe that has been provided is suitable for use by traders with long-term trading styles. As for traders who are intraday-style or even scalpers, the data is not very suitable. So it would be better if data from 1-day and 4-hour timeframes were also provided so it could be used by intraday traders and scalpers.
Do a technical analysis for 2 to 3 days (maybe more) using the Feer and Greed Index and the help of other indicators. Show how you decided to enter the cryptocurrency market and explain the results of your trade (Screenshot Required)
To do the technical analysis I will use a demo account that is on the trading view platform. After I saw the data provided by the fear and greed indicator from alternetive.me, I found out that the fear and greed indicator shows a value of 72 which we can conclude that when I do technical analysis the crypto market is in a state of greed which can be an opportunity to sell because when the market is in the "greed" phase there is a lot of demand available in the market and it becomes an opportunity for me to sell. But, as we know that an indicator cannot be used alone, so I use 2 other indicators the stochastic and the alligator.
I use stochastic to determine when there is overbought and oversold, when the fear and greed indicator shows that crypto is in the greed phase then I will only focus on the overbought area in the stochastic indicator. If the fear and greed indicator shows that crypto is in the fear phase then I will focus on the oversold area on the stochastic indicator.
Meanwhile, I use the alligator as a compass to see if the trend is in a state that is in accordance with the signals given by other indicators.
After getting data from the fear and greed indicator, I confirmed the signal with 2 other indicators in the trading view, as shown in the picture above, the stochastic has shown the price is in the overbought area, this matches the signal given by the fear and greed indicator that crypto in the "greed" phase, after getting signals from the two indicators I am waiting for 3 lines in the alligator indicator to show crossing each other downwards which means the market is in a downtrend so I open a sell order with stop loss at recent high and take profit at strong support.
CONCLUSION
What I can conclude from the assignment given by the professor this week is a very detailed lesson on a new indicator that is very useful to assist in technical analysis in the cryptocurrency market. This is a lesson that I will repeat again for me to read and I want to learn more about this fear and greed indicator in order to understand more and be able to use this indicator better.
CC: @wahyunahrul