Investing in Bitcoin is a wild and bumpy ride. Some choose to “HODL,” while others decide to trade the normally volatile crypto asset. Both are subject to extreme fluctuations in price, however, traders can turn market sentiment into a profitable trading signal.
Here’s how the cryptocurrency market fear and greed index can be used as a trade trigger, along with a clear anomaly where such a strategy proved completely ineffective.
Contrarian Trading Against Speculative Sentiment And Hype
Sentiment in the crypto market is nearly as all over the place as prices are. One day, prices are pumped and investors are calling for Lambos and Citadels, then the next day they’re expecting a catastrophic drop.
Whatever the direction is, the herd and the mainstream media are usually wrong, while institutional investors using advanced strategies profit from taking an opposing position.
Financial market sentiment can almost always be used as a contrarian indicator. But in a speculation driven industry where hype and buzz matter more than fundamentals, this is even more true.
Related Reading | How Lengthening Crypto Cycles Conflict With Halving Driven Supply Theories
Some of the wealthiest investors of all-time, including Warren Buffett and Baron Rothschild advocate taking contrarian positions. They also offer quotes that act as a reminder to do the opposite of what behaviors natural human emotion usually triggers.
“Be fearful when others are greedy, and greedy when others are fearful,” the Oracle of Omaha’s famous quote reads.
Bitcoin BTCUSD Crypto Market Fear and Greed Index | Source: TradingView
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