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We all have emotions that help us go through life, and they are an essential part of who we are as individuals and can help us navigate various situations. However, these emotions can be detrimental when it comes to cryptocurrency trading. One of these is Fear of Missing Out(FOMO), which happens when the market experiences high price fluctuations leading to an emotional call when trading instead of a technical one. When this happens, the investor might either sell too soon and lose the profits or buy very late, and prices tank. It could lead to portfolio damage and high losses over a long period due to impulse decision-making when a digital asset experiences extreme price swings. We shall look into the best indicator for crypto trading to help you when going through FOMO to decide on his article;
Fear & Greed Index
The Fear and Greed Index is a sentiment analysis tool that generates a number between 1 and 100 and can be used as a crypto FOMO indicator. It uses social media activity, Google trends, Bitcoin dominance, polling, volatility, and the trading volume to develop the index. Investors tend to get greedy when the market rises, leading to FOMO. It is reflected in the fear that they might not be able to take advantage of the market's opportunities. Hence, the index reads a higher number. On the other hand, when traders are more concerned with possible trend reversals, the Fear and Greed Index shows extreme fear. The score on the index shows a lower number. It's an excellent tool for people looking to keep track of market volatility and sentiment without going through the laborious process of actually reading and interpreting all of the data on crypto analysis. It can also help people identify a good time to buy and sell. For instance, it can help determine when the market is in the direction of fear; it is an indication to buy, while in the direction of greed, it indicates that it is time to sell. The score also indicates when prices will trend up(low score) or when the market will likely experience a correction(high score). Notably, users can use the index with other indicators to get a complete picture of the market.
Simple and Exponential Moving Averages
The moving averages are a calculation that considers the past prices of an asset for a certain period. Usually, these averages are used for different time frames, such as the 50-day, 100-day, and 200-day. The goal of using moving averages is to show the consistent trend of the asset over time. If an asset is above its moving average, it shows that it is in an uptrend; while it is below its moving average, it is in a downward trend. The 200-day and 50-day moving averages are often referred to as death crosses or golden crosses as they help investors identify both long-term and short-term trends. Meanwhile, moving averages come in two types; exponential and straightforward. The difference between the exponential and the simple moving average is that the former considers past prices while the latter focuses on the recent price trends.
Linear Regression Channel
The linear regression channel is a chart indicator that shows the trend channel over time within which the asset price fluctuates. The linear regression channel comprises three lines: the upper bound, the lower bound, and the median trend line. The upper bound is a resistance area where the asset price can't break. The lower bound supports the price where it goes up, while the median line tends to hold the asset price in the last 100 price points of the asset. The lower bound is a buy signal, while the upper bound is a resistance area that the asset price can't break through, showing a correction will happen hence an opportunity to sell. Note that when looking for a short-term trade, set the chart time frame to hourly, while for longer trades, weekly or a daily time frame should do the trick.
Relative Strength Index (RSI)
The relative strength indicator is a technical analysis tool that helps investors identify the direction of a cryptocurrency's price movement to show its weakness or strength. The indicator can determine if the asset is being overbought or oversold. In most cases, the RSI is calculated over a 14-day timeframe measured on a scale of 0 to 100. The indicator shows high and low levels of 70% and 30%, respectively. A level below 30 is considered oversold, while a level above 70 is considered overbought. Folks can also use the relative strength index to predict the market's direction. If the index goes below 70%, it can be considered a bearish signal; while it rises above 30%, it can be considered a bullish sign.
Author’s Take
The rise and fall of Bitcoin in 2017 were primarily attributed to the fear of missing out(FOMO). This psychological phenomenon can come in handy for investors who can exploit it. On the other hand, it can lead to massive losses that damage the investor's portfolio. Observing the above crypto signals can allow you to avoid FOMO and develop a strong trading mindset to experience profits.