Thursday, July 27, 2006

Riding the VIX Part 2

Another good example of how to use the VIX to key a trade.

Reference the figure.

1. On 7 26 2006 around 10:20 the VIX printed a topping formation. XLNX was already ascending but the 10 o'clock formation (a gravestone doji) suggested some uncertainty and perhaps even a reversal. But with the VIX topping it printed a hammer which indicates a continuation up.

2. Things begin to calm down in the noon hour and you can see that after throwing off a hanging man (reversal signal) at 12:15 the VIX then printed a hammer of its own. Note that XLNX reacted strongly to that with a black candle but that was a spinning top (uncertainty) so the trade could be kept until some confirmation appeared. This was followed by a another doji (uncertainty, maybe reverse, confirmation required) and then a white candle that reflected the VIX rolling over down once again at 12:45.

3. While this trade should have ended with the XLNX hanging man at 2:30 the third entry shows that when the VIX reascended through its 10 and then 33-period moving average at 3:15, XLNX followed suit by descending through its 10-period average at the same time. This would have been an absolute signal to end the trade at that point if you were still hanging on.

Again the figures are from - an excellent site.

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