Monson describes this technique as one of the oldest in the book - buying into equities when short-term investors, such as traders and hedge fund managers, feel forced out has always been a strong route to value.

'To me it's obvious. If the market has had a big fall then eventually it is going to pull back again,' he explained. 'For the real long-term investor, for who the asset class is a natural holding, [volatility] pushes the short-term investor out of the market leaving longer-term investors able buy at value prices. This is one of the oldest strategies around and one of the most reliable,' Monson added.

But LV= Asset Management head of equities Graham Ashby is unconvinced by the formulaic approach, which ultimately involves monitoring an index well followed by other investors.

'What the Vix Index provides you with is a guide to where investors are positioned in their portfolios and hence investor sentiment,' Ashby countered. He highlighted that by following the approach, seemingly contrarian investors could actually be buying consensus while acknowledging the benefits of tracking Vix.

'Combining this with other indicators, such as the Bank of America Merrill Lynch Global Fund Manager Survey and the American Association of Individual Investors Sentiment Index, provides investors with an insight into how bearish or bullish other investors are,' he said.

'This can provide a pointer as to when to invest in equity markets or, as Warren Buffett would put it, "be fearful when others are greedy, and greedy when others are fearful".

David Fuller's view The saddest observations during my financial career since the mid-1960s have involved capitulation selling by investors when bears are growling and stock market trends are accelerating towards their lows. In addition to their diminishing capital, these people suffer a loss of confidence and feelings of guilt because they did not sell at higher levels. This is understandable and most of us have done the same, to a greater or lesser degree, but hopefully not serially. Those who capitulate in a panic usually become born again bears and disciples of those who are forecasting the most extreme collapse, which seldom occurs. When markets turn upwards (remember, acceleration is a trend-ending signal of unspecified duration but often in proportion to the degree of overextension, as we teach at The Chart Seminar) investors who were panicked out of the market may never buy back or are unlikely to do so until prices are considerably higher.

Incidentally, the biggest bears are almost always bearish, just as the biggest bulls are almost always bullish. Think about it.

The opposite and equal folly is panic buying as previously cautious investors are eventually sucked into a market bubble, hoping that sky-high forecasts from those shouting most loudly will be correct after all. In following the crowd into a soaring market, these born again bulls have become gamblers, hoping to catch up with everyone else who bought earlier. They may make money, initially, if the trend is still accelerating higher towards its inevitable peak. However this may tempt them to forsake money control disciplines when they need them most. If leverage is involved the eventual downdraught can be disastrous.

How do we avoid these foibles?

1. Learn to read price charts so that you can see the market cycle, monitor momentum and look out for trend-ending signals, up or down.

2. Learn about crowd psychology which propels market trends until exhaustion eventually leads to their reversal.

3. Know yourself; otherwise you will not recognise the difference between your analytical and emotional sides.

4. Learn about market history, particularly regarding the more manic and depressive cycles.

5. Have some understanding of market valuations in a historic context.

6. Use prudent money control disciplines, especially with any leveraged positions.

7. Remember the Warren Buffet quote above: Be fearful when others are greedy, and greedy when others are fearful."