(1)Explain why emotional states can affect cryptocurrency price movements?
Ans. Humans are very much dependent on emotions. They experience fear, greed, anxiety, doubt and many more which also reflect their assumptions and price distribution in cryptocurrency market. If an human can learn to control his or her emotions then they could make really good decisions and have chance earn to earn high profits.
The crypto market highly related to the law of supply and demand for technical and economic analysis. In this market people sell and buy transactions which lead to their mindset and indirectly on their emotions. The law of supply and demand states that when the market value of cryptocurrency increases the demand also increases, same in the case of decrement.
In crypto market people undergo the emotional factors of fear and greed such as when the market or price of cryptocurrency loose people face fear of loosing the money and starts selling to reduce loss, and when the price rise they become greedy and starts buying to increase their profit.
Through which we can say that emotional factors can lead to the price movement in crypto currency
(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.
Ans. According to me fear and greed is a good option to determine the state of market. It also works as technical analysis tool which collects data from sources to predict how the trader's emotional state will influence the market.
But fully dependent to it is not reliable because it is dependent on emotional thinking of traders not on actual value. So along with it some other indicators such as ADX indicator and many more should be used to determine the actual tremd of market.
(3) Give your personal opinion on what data should be added to the Fear and Greed Indicator.
Ans. Some factors also be added to fear and greed indicator that will lead to profit of a trader are:
Like when a high priced cryptocurrency's value increased further then the other smaller or relatively lesser price currencies value aur increased. For example, if the price of bitcoin increased then other stakes such as Dogecoin, ship, Ethereum, bitcoin cash, etc also increase. Because people will think of to buy cheaper cryptocurrencies instead a big one which will increase their price and demand of crypto market.
Europhia also causes extra risk. Which should be prevented.
(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 made the decision to enter the cryptocurrency market and explain the results of your trade (Screenshot Required)
Ans. The fear and greed chart and graph shows how the market is dependent on it on a timely basis.
When the chart is between 0-40 it means the state of fear which describes that the stocks are oversold. From near about 60-100 it describes the state of greed which means the stocks are overbought and there will be a trend reversal.
If you are using fear and greed indicator then it is highly recommended to use an auxiliary indicator also to confirm. Sometimes, personally i use Relative Strength Index (RSI) as the as the auxiliary and fear and greed as the main indicator.
CONCLUSION
In market emotion is one of the thing that can effect the price of cryptocurrencies. As we all know emotion come from mainly investors who invest in crypto market.
The Fear and Greed index will make us realise that how important it is to have control on our emotions while investing in cryptocurrencies market . Ao depending only on emotions is a risky thing but to use with other indicators is a smart way.
Thanks a lot for reading.
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@wahyunahrul