Decoding Market Sentiments: Fear and Greed Index Explained
Market sentiment represents the collective emotion and is a reference to the overall mood or the attitude of investors and traders towards the financial market or a specific asset. It is the market sentiment which sets into shape the market movements like bullish and bearish.
The market sentiment is influenced by various factors, including economic indicators, company news, political events, and broader global events. Two crucial and benchmark factors that determine the market sentiment are fear (of loss) and greed (of profit).
Fear and Greed Index
This index is also referred to as the volatility index and it gauges the market risk and the investors’ sentiments about volatility. Here extreme fear is indicated by zero and extreme greed is indicated by 100.
A higher fear value usually indicates increased fear or uncertainty in the market. Also, excessive fear pushes the stock price down and extreme fear can trigger a bear run in the market.
The opposite of fear is greed and it is all about the feeling of profit and gains. A higher greed value indicates increased buying of a particular asset, or a prevailing sentiment in favour of the buying. The excessive greed pushes the stock prices up and extreme greed can trigger a bull run in the market.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.