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.
People thinks that bitcoin is now in overbought area where they thought that any time a retracement or a dump that may happen but it is just a myth, when it comes to a trending cryptocurrencies; the overbought and oversold is not working. Actually the bitcoin is really indicating a bullish sign because it is now consolidating above RSI 70 which means the trend is really strong. The overbought area and oversold is only working when the market is non trending or it is in sideways wherein if the RSI touch the RSI 70 expect that the price will make a swing down while if the price touch the RSI 30 Expect a swing high that will happen. But in this case, it is not working because the bitcoin is currently trending.