A composite sentiment indicator measuring market emotion on a scale from extreme fear to extreme greed — used by contrarians to identify when emotion has pushed prices far from rational value.
Deeper Explanation
Various Fear & Greed indices combine multiple data points: market momentum, stock price breadth, put/call ratios, market volatility (VIX), safe-haven demand, and junk bond demand. Readings below 20 (extreme fear) have historically preceded strong market returns; readings above 80 (extreme greed) have preceded weakness. The indicator is more useful as a contrarian signal at extremes than as a precise timing tool. The disciplined contrarian uses Fear & Greed as context: when fear is extreme, increase the vigilance for specific buying opportunities; when greed is extreme, raise the exit threshold and scrutinise holdings with fresh eyes.
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