Fear & Greed Contrarian

## Fear & Greed Contrarian — Full Methodology

### Sentiment Measurement

1. **CNN Fear & Greed Index:** Composite of 7 market indicators (VIX, put/call ratio, junk bond demand, stock price breadth, stock price strength, safe haven demand, market momentum)

2. **Scale:** 0 (extreme fear) to 100 (extreme greed)

3. **Historical context:** Average is ~50. Below 20 = extreme fear. Above 80 = extreme greed.

### Entry Criteria

1. **Long signal:** Fear & Greed Index drops below 15 (extreme fear territory)

- Confirm with VIX > 25 (broad fear confirmation)

- Enter long SPY at the close on the day the index drops below 15

2. **Exit/Cash signal:** Fear & Greed Index rises above 85 (extreme greed territory)

- Confirm with put/call ratio below 0.7 (complacency)

- Exit all positions and go to cash

### Exit Rules (for long positions)

- **Primary exit:** Fear & Greed Index rises above 60 (fear has subsided, take profit)

- **Stop loss:** 5% below entry (in extreme fear, further downside is possible)

- **Time stop:** Exit after 40 trading days

- **Scaling out:** Sell 50% at Fear & Greed = 40, remaining 50% at Fear & Greed = 60

### Position Sizing

- At extreme fear (index < 15): allocate up to 50% of portfolio to SPY

- At moderate fear (index 15–25): allocate 25% of portfolio

- This is a high-conviction, low-frequency strategy

### Best Market Conditions

Works best during sharp, panic-driven selloffs (COVID crash, SVB crisis, August 2024 Japan carry trade unwind). Fear is usually temporary and markets recover. Less effective during prolonged bear markets where extreme fear persists for months (2008–2009). The "extreme greed" exit signal helps avoid buying at the top.

### Backtest Notes

Tested on SPY daily bars + CNN Fear & Greed Index from Jan 2012 to Dec 2024. Extreme fear signals occur 2–5 times per year. The strategy is high conviction — it trades rarely but with large position sizes.