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The Fear and Greed Index aggregates market sentiment based on volatility, volume, social media activity, and dominance. Extreme greed often coincides with market tops, while extreme fear can signal accumulation zones. However, sentiment can remain in “greed” during extended bull runs, so timing entries solely from this metric is risky. Using it alongside on-chain indicators like SOPR or exchange reserves improves accuracy. Sharp sentiment shifts—especially after news events—can trigger rapid price swings, making this index useful for short-term trading psychology assessment and contrarian positioning during overheated or oversold conditions.
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