how the fear greed index works
the aim of the fear greed index is to assess market sentiment 1 because investing is often emotional and reactionary mood can influence an investor s decision to buy or sell stock the influence of 24 hour news and information networks can create strong reactions from investors known as the cnn effect the fear greed index attempts to gauge market trends based on the premise that fear results in stocks trading below their intrinsic value and that greed causes upward trends the index can be seen as both a legitimate investment research tool and a barometer for market timing 1while the fear greed index is a useful indicator it is not the only available tool to make investment decisions if you decide to use the index make sure you do your research and compile information from other sources before you make any important moves the fear greed index indicatorsthe index is based on seven underlying indicators1 the index is scored by taking an equal weighted average of the indicators 1 a reading of 50 is deemed neutral higher numbers signal greater greed lower numbers signal greater fear past fear greed index readingshistorically the index has been a reliable indicator of turns in equity markets the index sank to a low of 12 in september 2008 when the s p 500 fell to a three year low in the aftermath of the lehman brothers bankruptcy and the near demise of insurance giant aig 2 by contrast it traded over 90 in september 2012 as global equities rallied following the federal reserve s third round of quantitative easing on march 12 2020 during the rise of the covid 19 pandemic the index fell to an annual low of 2 when stocks plunged 10 and entered a bear market by november 2020 the index registered at 69 in the extreme greed category territory when optimism grew about a coronavirus vaccine 3the fear greed index vs the cryptocurrency indexa similar index based on fear and greed and tailored to the cryptocurrency market was introduced by alternative me a software recommendation website this adapted version of the index was developed from various online sources to create a sentiment measure for bitcoin and other cryptocurrencies according to the index developers crypto market behavior can be as emotional as traditional markets 4the crypto fear and greed index from alternative uses the following inputs 