Fear and Greed Index in forex
The Fear & Greed Index measures overall investor sentiment on a 0-100 scale. Values below 25 indicate extreme fear, historically a contrarian buying opportunity. Values above 75 indicate extreme greed, often a signal to sell or reduce exposure.
How the index is calculated
The index (from alternative.me for crypto, and CNN for traditional markets) aggregates several sentiment indicators: volatility, market momentum, safe-haven demand, put/call ratios, and social media sentiment. Each component contributes to the final score.
How SignalsTrades uses Fear & Greed
- Score < 25 (Extreme Fear): markets may be irrationally pessimistic → BUY signal
- Score > 75 (Extreme Greed): markets may be irrationally optimistic → SELL signal
- Score 25-75: NEUTRAL, no strong signal from this indicator
Fear & Greed as a contrarian tool
Most signal indicators follow the trend. Fear & Greed is contrarian, it suggests moving against the crowd at extremes. This is why it works best in combination with momentum rules: a BUY signal from Fear & Greed plus positive momentum is stronger than either alone.
Does Fear & Greed apply to individual currency pairs?
The index is market-wide, not pair-specific. It reflects broad risk sentiment. For risk-sensitive pairs like AUD/USD or GBP/USD, it is more relevant than for safe-haven pairs like USD/JPY or USD/CHF.
How often does the index update?
The alternative.me index updates daily. SignalsTrades fetches the latest value when generating each signal, so you always see the current reading.