What it shows: a contrarian rule on a market-sentiment index — buy when sentiment hits extreme fear, sell at extreme greed — and how that bet survives a range vs a trend.
Both price and the sentiment index are simulated (sentiment tracks recent momentum plus noise). Illustrative — not a real sentiment gauge, and not investment advice.
Set your contrarian thresholds
“Be greedy when others are fearful.” Buy when the sentiment index sinks into extreme fear, sell when it climbs into extreme greed. Set the two lines and the market's character.
Range-bound market — fade the extremes
This contrarian rule made 7 trades (71% winners), returning +30% versus +68% buy-and-hold. When markets swing in a range, fading the extremes — buying capitulation, selling euphoria — captures the round trips. The catch the chart hides: markets can stay greedy (or fearful) far longer than feels reasonable.
How the rule did
Contrarian return
+30%
Buy & hold
+68%
Trades
7
Win rate
71%
Price & contrarian signals
The sentiment index
Reading this
Sentiment extremes are a genuine contrarian signal at major turns — but a dangerous one mid-trend, where the crowd is right for longer than you can stay solvent betting against it. Like other oscillator-style rules, it suits ranges and misfires in trends. More in Fear & greed: how sentiment drives timing.
Frequently asked
- Does buying fear and selling greed actually work?
- Contrarian sentiment timing has real merit at major extremes — the best buying opportunities often come during peak panic, and froth often precedes trouble. But it works far better in range-bound markets than in trends, where the crowd stays greedy (or fearful) much longer than feels reasonable, and fading it early is painful.
- What is a fear and greed index?
- It is a composite gauge of market sentiment, typically blending signals like volatility, momentum, demand for safe havens, and put/call ratios into a single 0–100 score. This tool uses a simplified, simulated sentiment index that tracks recent momentum plus noise, so you can experiment with contrarian thresholds.
- Why can contrarian timing lose money?
- Two ways: selling into greed means exiting while a strong rally keeps running, and buying into fear can mean catching a "falling knife" as a decline continues. As the saying goes, the market can stay irrational longer than you can stay solvent — so being right about the extreme but early about the timing still loses.
- Is this real sentiment data?
- No. Both the price and the sentiment index are simulated and illustrative — they show how a contrarian rule behaves, not a live indicator. Educational only, not investment advice.