Hi folks!
There is a saying that you cannot T.A. the VIX - as it is not directly tradeable and is derived from a complex computation based on short term options premiums of the S&P500.
However, the VIX also is an estimate of the expected short term volatility in the market (i.e. in the next 30 days), and by definition should be significantly correlated with realised volatility.
Thus, there are some measures you can take to try predicting market moves:
The Bollinger bands explicitly aims to model the short term realised volatility and the fact that periods of VERY low volatility often preceded periods of high volatility.
In my opinion, it makes perfect sense to analyse the VIX in terms of Bollinger Bands - on the 4h, which I usually use to trade both the VIX and the SPY in general.
I want to test a hypothesis that a very tight BB gap often leads to relatively large VIX spikes.
I also tried to combine it with the MACD indicator to see if we could find an even stronger buy signal, and here are my result based on my extremely brief study:
- A very tight BB gap "always" leads to a relatively large VIX spike.
- If you find a divergence in the MACD at the same time, the signal is even stronger (although the tight BB in itself seems to be the most important signal).
I did only include a chart since the covid-correction until now, as the findings are hard to vizualise over longer time frames.
In my humble opinion, it is absolutely time to buy the VIX now (although it may continue further down, it does not make a huge difference unless you have a tight SL/very short duration of your contracts).
DYOR.
NFA.
I wish you all well :)
There is a saying that you cannot T.A. the VIX - as it is not directly tradeable and is derived from a complex computation based on short term options premiums of the S&P500.
However, the VIX also is an estimate of the expected short term volatility in the market (i.e. in the next 30 days), and by definition should be significantly correlated with realised volatility.
Thus, there are some measures you can take to try predicting market moves:
The Bollinger bands explicitly aims to model the short term realised volatility and the fact that periods of VERY low volatility often preceded periods of high volatility.
In my opinion, it makes perfect sense to analyse the VIX in terms of Bollinger Bands - on the 4h, which I usually use to trade both the VIX and the SPY in general.
I want to test a hypothesis that a very tight BB gap often leads to relatively large VIX spikes.
I also tried to combine it with the MACD indicator to see if we could find an even stronger buy signal, and here are my result based on my extremely brief study:
- A very tight BB gap "always" leads to a relatively large VIX spike.
- If you find a divergence in the MACD at the same time, the signal is even stronger (although the tight BB in itself seems to be the most important signal).
I did only include a chart since the covid-correction until now, as the findings are hard to vizualise over longer time frames.
In my humble opinion, it is absolutely time to buy the VIX now (although it may continue further down, it does not make a huge difference unless you have a tight SL/very short duration of your contracts).
DYOR.
NFA.
I wish you all well :)
