Definition ∞ A Fear Indicator is a market tool designed to quantify the level of investor anxiety or uncertainty within financial markets. These indicators often synthesize data from various sources, such as volatility indices or trading volumes, to gauge collective sentiment. A high reading typically suggests widespread concern, while a low reading indicates complacency. It provides insights into potential market reversals or continued trends.
Context ∞ In digital asset markets, fear indicators are closely watched for signals of extreme market sentiment, often correlating with significant price movements. The discussion frequently involves how these indicators can help traders avoid emotional decisions during periods of high volatility. Understanding a fear indicator’s current reading provides context for interpreting market behavior.
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