Case Study: Fear & Greed Index Adaptive DCA vs Regular DCA for S&P500 ETFs

This analysis compares two investment strategies for S&P500 ETFs (SPY) over the period 2011–2025:

1. Regular Monthly DCA
   : Fixed $100 monthly contribution regardless of market sentiment.
2. Adaptive DCA
   : Variable contributions based on CNN’s Fear & Greed Index (0=extreme fear,100=extreme greed):
   • $150 at extreme fear (<20), $100 at neutral (20–80), $25 at extreme greed (>80).

Data sources include Code Meets Capital [1], Medium [2], and CNN Business [3]. Performance metrics: ROI, average cost per share, Sharpe ratio.

Results show adaptive DCA outperformed regular DCA with same total contribution ($8,400 over7 years):

• Adaptive DCA: Final value $23,892 (184.2% ROI) vs regular DCA: $18,873 (124.8% ROI) [2].
• Extreme fear purchases yielded median3-year returns of28.7% [1], e.g., March2020 (index=4) gave65% return in12 months [1].
• Adaptive DCA had lower average cost ($325 vs $372) and higher Sharpe ratio (1.62 vs1.24) [1,2].

1. Extreme Fear as Reliable Buy Signal
   :85% of extreme fear periods (2011–2025) coincided with SPY lows [1]. Short-term volatility (up to15% in3 months) is offset by long-term gains [1].
2. Extreme Greed Not a Sell Signal
   : Only12% of extreme greed periods preceded crashes; most occurred during bull runs [1].
3. Emotional Resilience Critical
   : Extreme fear periods have negative news, but patience is needed for long-term gains [1].

• Data bias:2011–2025 data lacks major crises like2008/dot-com bubble [1].
• Overlapping data points may inflate statistical significance [1].
• Requires daily monitoring of Fear & Greed Index [3].

• Adaptive DCA offers higher ROI and risk-adjusted returns for investors with3+ year horizon [1,2].
• Adjusting contributions based on sentiment reduces average cost [1].

• Adaptive DCA using Fear & Greed Index outperformed regular DCA by47% (184.2% vs 124.8% ROI) with same total contribution [2].
• Extreme fear purchases had median3-year returns of28.7% [1].
• Adaptive DCA’s Sharpe ratio (1.62) was higher than regular DCA (1.24) [2].
• Limitations include data period bias and need for real-time sentiment monitoring [1,3].