A simple guide to Bitcoin market indicators
Bitcoin market indicators are far from an exact science but it’s worth knowing the names and workings of the stars by which investors sail these often unpredictable waters. There are hundreds of technical indicators that investors look to for guidance but we’ve stuck to the more commonly used ones that you don’t require a degree in finance to decipher.
Fear and greed index
The Fear and Greed index was originally developed by CNN Money but the Bitcoin-only version owes its origins to software company Alternative.me. The index uses investor sentiment as the barometer to gauge whether buyers are greedily lapping up Bitcoin (extreme greed) or avoiding it like a dirty sock in a laundry bin (extreme fear).
What the numbers mean
0-49 – Fear
50 – Neutral
51-100 – Greed
The index currently gathers data daily from five inputs
- Volatility (25 %) – current volatility is compared with the average values of the last 30 and 90 days
- Market Momentum/Volume (25%) – current momentum is compared with the average values of the last 30 and 90 days
- Social Media (15%) – hashtags from stories and how fast and how many interactions they receive in certain time frames
- Dominance (10%) – the market cap share of Bitcoin of the whole crypto market
- Trends (10%) – Google Trends data for Bitcoin-related search queries, especially the change in search volumes
Market capitalisation (market cap)
Bitcoin’s market cap is calculated by multiplying the total number of Bitcoin in circulation by the current price of 1 Bitcoin. Investors look to the market cap to see which cryptocurrencies have the upper hand or to compare the strength of an asset versus another.
Bitcoin market dominance
To simplify things, let’s say the crypto market cap is $100 billion and Bitcoin’s market cap is $40 billion. This would mean that Bitcoin’s market dominance is 40%. Market dominance is the percentage value of Bitcoin’s market cap relative to the total crypto market cap.
The volatility index tracks the fluctuations in Bitcoin’s price, the ups and downs, over a 30-day period and is displayed as a percentage value. The volatility index works overtime, but the severe fluctuations have become somewhat of an accepted byproduct of the industry being in its infancy.
The volume indicator is the total value of Bitcoin being bought and sold on exchanges globally at a certain time, called the spot trading volume. High trading volumes can indicate that a specific price is receiving support in the market.
Relative Strength Index (RSI)
The RSI measures how much Bitcoin has gained on its upward price changes versus how much it has lost on its way down and is measured over a period of 14 hours, days, or weeks.
Investors use RSI to gauge whether the market is overbought (values of 70 and above) or oversold (30 and below), with readings varying between 0 and 100.
Those red and green nubs spread across the blackboard of a digital exchange are called candles, and each holds a tonne of useful information. A candle provides trading data for a specific period, either a minute, hour, day or other chosen period.
The candle is made up of a body, an upper shadow and lower shadow – those wicks on both ends. The body shows the opening and closing prices of a market for the chosen period, while the upper shadow indicates the highest price achieved during the period and lower shadow the lowest; these are simply called the high and the low.
If a candle is green, Bitcoin’s market value closed higher than its opening value, and vice versa for a red candle. Green candles begin at the bottom and close at the top while the opposite is true for red candles. Green indicates a bullish market while red indicates a bearish one.
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