Tuesday, January 30, 2007

The VIX

Adam over at Adam's Options has one more interesting article on the VIX to share with you. It is worth your time to read it.

But I wanted to show you something else about the VIX - something that every day trader should know - you can read the VIX as if it were a stock -



As you know but by way of refresher when the VIX goes up the market goes down and vice versa. As you can see in the figure above - the head and shoulders formation suggests that the VIX is going down. If you remember last Friday the later half of the day saw a large recovery and many stocks finished the day up. Yesterday the blow off bottom in the VIX signalled an abrupt reversal of the market which did occur beginning at 1 P.M. EST. (Note there is no volume in the VIX - the blow-off bottom has to be intuited by the large descending candle followed by an ascending candle). You can also keep a chart of the VIX on your monitor with the Bollinger Bands as is suggested in Adam's article. That looks like this on the 15 minute charts from yesterday. Once again a clear signal that the market would be changing direction.



So you see - keeping an eye on the VIX can inform the direction of your trading regardless of your time frame.

And yes I'm supposed to be going on vacation - I'm going, I'm going.

1 comment:

QUALITY STOCKS UNDER 5 DOLLARS said...

Nice review on some well known topics.