Depending upon the attitude of traders in capital markets  four interaction scenarios between them and market can be identified. Those interactions can be seen as being driven by traders opposite emotions, that is greed and fear. The combination of these emotions may produce either positive or negative feedback between  traders and market. There are four qualitative scenarios, each showing a possible interaction between  traders and market. First two of them define those traders who buy stock when share prices are rising, and sell when prices are decreasing. In both cases the trader’s action magnifies the trend:  the more they buy, the more the price goes up; the more they sell, the more the price plummets. Such a situation represents positive feedback, which can lead to a dramatic and uncontrolled changes of price. Therefore, we shall refer to such traders as to the“hot money”.  The other two scenarios define those traders who buy stock when the share price is decreasing, and sell it when the price is rising. Such a trader’s attitude counteracts the direction of stock movement and thus stabilizes the price of the stock. This situation represents negative feedback. We shall refer to such traders as to the “cool money”.

A transformation of  this qualitative model into a quantitative one using two streams of data, i.e. quotation and volume is proposed. There are 12  quantitative scenarios  resulting from this model. Under an assumption of trader’s  common sense  they can be reduced to 6 scenarios. Analysis of the aforementioned scenarios using historic data of  the US DJIA and WIG – Warsaw Stock Exchange index are is presented.  As a result a new definition of market index is proposed.

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