Hey guys,
By recent Fear&Greed Index bitcoin is in extreme greed area, usually it's a sign of decline in price or even crash. I've been observing this index for quite some time and find it pretty accurate, of course it doesn't give you the exact day or time but it indicates the sentiment on the market. Do you ever use this index in your trading analysis?
Just like funding rate and long vs. short data, it's good to keep an eye on it. It's good for giving a warning of impending capitulation or blow-off top, yes.
Unfortunately, it can be deceptive. I can't tell you the number of times I've heard "the index is greedy, we need a correction!" and then the correction doesn't come until price is 20-30% higher.
Sentiment works a lot like momentum oscillators like RSI and such. During a range market, it's safe and sensible to sell overbought and oversold levels. However during a very strong trend, momentum can become embedded in overbought or oversold zones for a long time. In the same way, during a very strong bull trend, the market can remain "greedy" for quite some time before the eventual crash comes.
To put it more simply: it's pretty difficult to trade based on sentiment alone because it's difficult to time. You'll want to look for other technical reversal signs too.
I hold the same opinion, if the movement was weak then the fear and greed index could be used to try to guess that a reversal was coming but when the movement is strong then the indicator can remain on the greed part for a very long time and trying to predict a reversal is a losing move, to me this seems like the time to just let the trend do its thing and see where it lead us and only once we see a reversal then you get out of your position if you are a trader or you keep holding if you are a long term investor.