Fear and Greed in Trading: What the Research Measured and How to Keep Them in Check

Fear and greed can push a trader off the plan. Fear makes you exit a good trade too early, hold a losing one in the hope it comes back, or stay out after a loss. Greed makes you add to a position because it is working, double down on one that is not, or use more leverage than the plan allows. Neither feeling can be switched off; what you can control is how much room your rules leave them.

What the research measured

Behavioral finance has measured how these pulls show up in real brokerage accounts. Two studies by Terrance Odean, one with Brad Barber, measured them directly.

The 1998 study covers 10,000 accounts at a large U.S. discount broker from 1987 to 1993 (Odean, Are Investors Reluctant to Realize Their Losses?, 1998, PDF). The tendency it tests, to “hold losing investments too long and sell winning investments too soon,” was named the disposition effect by Shefrin and Statman in 1985. It reverses in December, when tax-motivated selling is most evident: investors then realized 12.8% of their losses against 10.8% of their gains. The 2001 study covers more than 35,000 households from February 1991 to January 1997 (Barber and Odean, Boys Will Be Boys, 2001, PDF). Both cover U.S. stock investors with the costs of the time; they measure behavior, not your own account.

How fear shows up in your trades

• Closing a winner early to lock in the gain before it disappears, the half of the disposition effect that leaves money on the table.
• Holding a loser and moving the stop, so as not to make the loss real.
• Not taking a valid setup after a loss, then chasing the move once it has gone.
• Selling everything in a crash near the low, after holding through the whole fall.

How greed shows up in your trades

• Adding to a winner beyond the planned size because the market “has to” keep going.
• Doubling down on a loser to get back to breakeven faster.
• Overleveraging to make more from small moves.
• Trading more because you feel sure of yourself, the overconfidence that Barber and Odean link to excessive trading; its cost is measured in the dangers of overtrading.

Fear and greed in the market: the CNN Fear & Greed Index

CNN publishes a Fear & Greed Index that tries to measure the same two moods across the U.S. stock market. Its methodology page, read on October 31, 2026, says it combines seven indicators, tracks “how much these individual indicators deviate from their averages compared to how much they normally diverge,” and gives each “equal weighting in calculating a score from 0 to 100, with 100 representing maximum greediness and 0 signaling maximum fear” (CNN, Fear & Greed Index). We do not quote a current value: it changes as soon as new data comes in.

Only the first indicator can be rebuilt from price alone, so we recomputed it on our daily S&P 500 ETF bars. The rule: count the sessions where the close is below its 125-session simple moving average. From July 1, 2021, the first date with a full average, to October 28, 2026, that was 293 of 1,338 sessions, 21.9%, in 20 separate stretches.

Five of the 20 stretches lasted 20 sessions or more and held 219 of the 293 sessions below the average; the other 15 lasted from 1 to 16 sessions. On October 28, 2026 the close was above the average. This shows how often the momentum part of the index points to fear; it is not the index itself, which also weighs the six other indicators, and a reading of fear is not a buy signal on its own. Five long stretches in five years is too few to say what usually follows.

The share of sessions below the average also changed a lot from year to year: three in four sessions in 2022, about one in eight in 2023 and almost none in 2024. A reading that was rare in one year was the norm in another.

Ten rules that keep fear and greed out of your trades

1. Write a trading plan with entries, exits and size before you trade; see trading plan.
2. Set the stop when you enter and never move it further away.
3. Trade smaller. A position you can lose without stress leaves less room for fear; size it with position size.
4. Use a rule for winners, a target or a trailing stop, so that you do not decide in the moment.
5. Never add to a loser unless the plan says so before the trade.
6. Do not watch every tick. Place the trade, set the orders and step away.
7. Ignore the crowd and tips; the pull to follow them is described in FOMO trading.
8. Do not concentrate the account in one asset.
9. Pause after a streak, winning or losing, with a limit written in advance.
10. Keep a journal of each trade and the emotion behind it; see how to track trading performance.

Practicing with no money at stake helps to see your reactions before they cost anything; see the best paper trading apps. Tell pressure and stress apart: a goal can sharpen your focus, but if the stakes of a single trade feel out of control, the position is too large for you. Patience, the other side of the same discipline, is covered in patience and discipline in trading, and some traders keep a few lines from trading quotes on their desk. More on the mental side in trading psychology.