Fear & Greed Backtester: how the test works

A backtest asks a simple question: if I had followed this rule in the past, what would have happened? This tool answers it for one rule. You pick a buy level and a sell level on the Fear & Greed scale, and a starting amount in dollars. The tool then walks through Bitcoin's history day by day and buys and sells by your rule.

The Fear & Greed Index is a daily sentiment score from 0 (extreme fear) to 100 (extreme greed). The idea behind using it is that markets often feel worst near lows and best near highs. The backtester lets you check how a rule built on that idea would have behaved, instead of trusting the idea on feel.

At the end you see how your rule did next to buy and hold, how many full buy-and-sell rounds it made, and how deep the worst drop was.

You have three inputs. The buy slider runs from 1 to 49 and starts at 20. The sell slider runs from 51 to 99 and starts at 75. The starting investment can be anything from $100 to $1,000,000 and starts at $1,000. The two sliders push each other apart, so the buy level always stays below the sell level.

After the run you get three result cards and a chart. The third card shows the number of trade cycles and, underneath, the max drawdown. The chart shows your strategy against buy and hold, using one point per month so it stays readable. Hover over it to see the values for a month.

A buying phase starts on the first day the index is below your buy level, and a selling phase starts on the first day it is above your sell level. A value exactly equal to your level does not start a phase, even though the slider label reads “≤” and “≥”. The test never buys and sells at the same time. It works through a buying phase, then waits, then a selling phase, and so on.

It does not put everything in on one day. Cash is spread over the length of the phase. On the first day of a buying phase the test sets a daily amount: the cash it has left divided by the average length of earlier buying phases, or 14 days for the first one. It spends that same amount on each day the index stays below your level. Selling works the same way with Bitcoin. Only data up to that day is used, so the test never peeks at the future.

A phase does not end the moment the index steps back over your level. It ends after 3 days in a row outside the zone. If the opposite signal appears during those 3 days, the test switches to it straight away. Whatever is left to buy or sell when a phase ends is traded on its last day. The same happens on the final day of data.

Every trade pays costs: a 0.10% fee and 0.05% slippage, which is the small gap between the price you see and the price you actually get. Buy and hold pays the same costs once, when it buys on day one.

The sentiment values come from the daily Fear & Greed Index published by Alternative.me, loaded for its full history. The Bitcoin prices are daily prices from CoinGecko when the site has access to it, and from Blockchain.com otherwise or when CoinGecko cannot be reached. A day is only used when both a sentiment value and a price exist for it.

The combined data is kept for one hour before it is fetched again. The period you test is simply as much history as the index has, and the buy and hold card shows how many years that was.

Alternative.me builds its index from its own mix of inputs and can change how it works. Our own Fear & Greed page explains the index and how we show it. The backtester uses the published index values as they are.

Above the result cards you also see a small teaser with a “BTC Risk” label and an action window. These come only from today’s Fear & Greed value and your two levels. They are simple labels, not a separate model and not the Risk Wave indicator.

The Risk label has four steps: Lower for a value under 35, Moderate from 35 up to 54, Elevated from 55 up to 74, and High from 75. The action window reads “Buy zone active” when today’s value is at or below your buy level, and “Take-profit zone active” when it is at or above your sell level. In between it reads “Watchlist mode” in the lower half and “Stay patient” in the upper half. Read these as a description of where the index stands against your levels, not as an instruction.

A backtest is a story about the past. Keep these points in mind before you trust a result.

A made-up example. You keep the starting settings of buy at 20, sell at 75 and $1,000, and run the test. Say it shows a lower return than buy and hold but a smaller maximum drawdown. That tells you the rule spent time in cash and avoided some of the falls, at the price of missing part of the climb.

You then ask whether that trade is one you could live with in a real market, and you look at the sentiment extremes in our guide on DCA during extreme fear. The numbers above are invented to show how to read the cards. They are not a result of the tool.

This explainer is free to read for everyone. On the public Fear & Greed Backtester page you can run one free backtest per browser, with any buy and sell levels you like and no account. After that run the sliders lock and you are pointed to Premium. The written readout under the chart (why this rating and when to act) and the chart itself are blurred until you leave an email for the free full report. The free-run limit is stored in your browser, so a different browser or cleared site data shows the page fresh. The email unlock only lasts for the current browser session.

Premium members get the full Backtester inside the trading lab. They can pick the indicator, the timeframe, the buy and sell levels and the trading costs, run as many tests as they like, and save strategies. Free members who log in see one fixed sample run there, with the indicator and settings locked. See pricing for what is included today.