Definition
A fear and greed index is a sentiment score from 0 to 100 that summarizes market mood, where 0 means extreme fear and 100 means extreme greed.
How it works
The index combines several market and behavior measures into one number. Each input is converted to a 0–100 sub-score, and the sub-scores are weighted and averaged. Crypto versions may use price volatility, momentum, trading volume, social media activity, bitcoin dominance, search trends or surveys; stock-market versions use their own inputs. The inputs, weights and update times differ by provider, so two indexes can show different readings on the same day.
Readings are usually grouped into bands such as extreme fear, fear, neutral, greed and extreme greed, though the band edges also vary. A low reading means recent data look like worry: falling prices, rising volatility or money moving into bitcoin or stablecoins. A high reading means recent data look like enthusiasm: rising prices, high volume and heavy social media attention.
The index describes mood that has already shown up in the data; it does not predict what comes next. Markets can stay in extreme fear or extreme greed for weeks, and the score can jump when one input moves sharply. It is most useful as context next to price, volume and the reasons behind a move, not as a timing signal.
Example (hypothetical numbers)
Suppose a provider builds its index from three inputs: volatility weighted 50%, momentum 30% and social media 20%.
Today the sub-scores are volatility 20, momentum 40 and social media 70.
Index = 0.5 × 20 + 0.3 × 40 + 0.2 × 70 = 10 + 12 + 14 = 36, below the neutral midpoint of 50, on the fear side.
With equal weights, the same sub-scores would give (20 + 40 + 70) ÷ 3 ≈ 43.3, so the reading depends on the provider's method as much as on the market.
Common mistakes
- Treating an extreme fear reading as an automatic buy signal, or extreme greed as a sell signal.
- Comparing readings from different providers as if they used the same inputs.
- Forgetting that one input, such as a single volatile day, can swing the whole score.
This glossary is for education only and is not investment advice. Examples use hypothetical numbers.