When markets move sharply—up or down—it’s often driven more by emotion than logic. That’s why understanding market sentiment is just as important as knowing price levels or earnings reports. One of the most popular tools for this purpose is the Fear & Greed Index. In this beginner-friendly guide, we’ll explain what the index is, how it works, and how you can use it to make smarter trading and investing decisions.
What Is the Fear & Greed Index?
The Fear & Greed Index is a daily sentiment indicator created by CNN Business that tracks how emotional the stock market is. It scores market sentiment on a scale from:
- 0 (Extreme Fear)
- to 100 (Extreme Greed)
The higher the score, the more greed is dominating the market. The lower the score, the more fear is driving investor behavior.
Why It Matters
Markets often overreact in the short term:
- During panic, prices may fall too far too fast
- During euphoria, assets may become overbought
By measuring this behavior, the index helps investors:
- Spot potential buy or sell zones
- Avoid emotional decisions
- Stay objective during volatile times
How the Index Is Calculated
The Fear & Greed Index uses seven key indicators to measure market sentiment:
- Stock price momentum (S&P 500 vs 125-day average)
- Stock price strength (new highs vs lows)
- Market breadth (advancing vs declining volume)
- Put/Call ratio (options activity)
- Market volatility (VIX)
- Safe haven demand (stocks vs bonds)
- Junk bond demand (risk appetite)
Each of these is scored from 0 to 100 and averaged to create the final index value.
Index Score Breakdown
| Score Range | Sentiment Level | Market Behavior |
|---|---|---|
| 0–24 | Extreme Fear | Panic, risk-off, possible buying zone |
| 25–49 | Fear | Cautious sentiment |
| 50 | Neutral | Balanced outlook |
| 51–74 | Greed | Risk-on, chasing gains |
| 75–100 | Extreme Greed | Euphoria, possible reversal risk |
How Traders and Investors Use It
1. As a Contrarian Indicator
- Buy when sentiment is extremely fearful
- Sell or reduce exposure when sentiment is extremely greedy
2. To Time Market Moves
The index can signal potential turning points in the market, especially when it aligns with technical support or resistance levels.
3. For Portfolio Rebalancing
Long-term investors may adjust allocations based on sentiment extremes to manage risk or capture value.
Where to Check the Fear & Greed Index
You can view the live index daily on:
- CNN Business
- Financial news sites
- Custom dashboards via TradingView, ThinkorSwim, or browser plugins
Key Benefits
- Simple to understand: Great for beginners
- Emotionally helpful: Reduces panic selling or buying
- Backed by data: Combines technical, volatility, and risk metrics
Limitations
- It updates only once daily (not real-time)
- Should be used with technical and fundamental analysis
- Best for swing trading and position investing—not scalping
FAQs
Is the Fear & Greed Index accurate?
It’s a reliable sentiment snapshot, but not a trading signal. Use it to support—not replace—your strategy.
Can beginners use it?
Yes. It’s one of the easiest sentiment tools to start with and adds emotional context to your decisions.
Is it only for U.S. stocks?
CNN’s version tracks the U.S. stock market. For crypto, use the Crypto Fear & Greed Index.
Does Warren Buffett follow this?
While Buffett doesn’t directly follow the index, the principle of being “fearful when others are greedy, and greedy when others are fearful” aligns with its core idea.
How often should I check it?
Once per day is enough—especially before making trade or investment decisions.