StockFetcher Forums · General Discussion · VIX Variance Signal<< 1 2 3 4 >>Post Follow-up
3,857 posts
msg #80745
Ignore Kevin_in_GA
10/6/2009 6:43:17 PM

Thinking this one through a bit - the best set up migfht actually be when the ^VIX closes above/below the BB(9,2), then wait for a confirmation where it subsequently closes back within the BB (like on Friday - a better entry point for this last trade).

Testable? I'll see tonight.

BTW, this seems to be representative for all indices, not just the S&P 500, as evidenced by my play on TNA (the 3x bull for the Russell 2000).

353 posts
msg #80750
Ignore BarTune1
10/6/2009 9:11:28 PM


In my opinion I would not wait for confirmation. Rather, I usually add predefined units each further day the signal occurs, and that you can buy the particular stock or ETF at a better price. For example, I might add another unit three days up to three units. In fact, I did aquire more positions Friday.

Larry Connors preaches a scale in approach called TPS .... where you buy 1 unit the first day, 2 the second day, 3 the third day and 4 the forth day, for a total of 10 units - providing it signalled day 1 and you got better prices the next few days. Your exit is always a cross of the 5 dma. Using the TPS scale in, your chances of making a profit go well over 90%. This works well on stocks too but is problematic if you arn't investing larger amounts.

One further note of the cross of the 5 dma as an exit - which is my primary exit criteria - it often "violently" crosses the exit as it did today, relatively speaking. Therefore, you are often able to book a more significant gains than simply the difference between where the stock is trading and where the 5 dma sits.

Another approach, rather than waiting for confirmation, which I often use on stocks, is to wait for a buy signal (i.e., I use Trading Markets Power Ratings stocks, the 2 day RSI, and b% to find oversold or overbought stocks). Then, I will try to buy on an intraday pullback of 3-5% or more depending on my appetite for risk. Shorting is the opposite.

According to Connors work, and I can attest to this, your odds on a mean reversion trade significantly increase buying on such pullbacks. Consequently, rather than waiting for confirmation, you could simply set an entry point at a reasonable % below the prior days close, depending on the volitility of the particular stock. On Friday, you may well have picked up more units close to the bottom using such an approach.

Just my thoughts .... I have not figured out to backtest here and have basically relied on other peoples work and studies.

3,857 posts
msg #81085
Ignore Kevin_in_GA
10/14/2009 8:15:10 PM

Daily VIX chart - should update automatically:

2,817 posts
msg #81090
Ignore chetron
10/14/2009 9:00:20 PM


3,857 posts
msg #81093
Ignore Kevin_in_GA
10/14/2009 9:17:27 PM


A stat you'll appreciate (this was your thesis at the start of this thread) -

from Small Fish, Big Odds (

"Over the past week, the VIX has moved from trading well above it's 10MA to now trading below it's 10MA by 10 percent or more. There have been 124 cases in the past decade where th VIX has closed below it's 10MA by 10% or more. In 102 cases (or 82%), the S&P 500 was trading lower within 3 days."

I think he's wrong this week, however. He predicted a close below 1071 for today, based on these stats.

353 posts
msg #81103
Ignore BarTune1
10/14/2009 11:31:35 PM


You are amazing me ... where do you come across all this? ... you must read alot ! I only have a few sources I follow along with the analytics of StockFetcher, TradingMarkets and Stockcharts ... that seems to cut into my day quite a bit ...

The VIX chart you posted is pretty nifty.

This trending market has not been helping me much lately - I have a bad feeling its going up also - I have been profitable every month since February with the exclusion of July - and thats being primarily short - that being said, my profits have definately been lower since July -

The VIX variance and RSI(2) are my main indicators .... both indicating I should be short .... but I think, or I know, I would be 5 times better off had I focussed on buying weakness rather than selling strength since the SPY (or market in general) crossed its 200 dma.

Oh well, we'll see what happens - I see everything seems to be up in afterhours - I guess if I'm lucky I may squeak out another small profit hopefully ....

3,857 posts
msg #81278
Ignore Kevin_in_GA
10/16/2009 6:19:22 PM

Some interesting VIX-related links:

VIX Chart with analysis

VIX and More Blog

Another VIX-trading Blog

Interesting reads. Enjoy.

BarTune - odd day today, both the SPX and VIX were red candles. According to
Cobra's Market Watch (a great resource) the last 26 times this has happened, odds favor a green day next day (16/26 times or 61.5%). Not a huge stastistical advantage, but every little edge helps.


353 posts
msg #81281
Ignore BarTune1
10/16/2009 9:42:30 PM

Yeah, I have taken a bit of a beating this past week - however most positions are still open and it ain't over till the fat lady sings. In taking a look at my closed trades most were actually profitable (QID, JBL, DZZ) and a profitable pairs trade on both BP/COP & CIEN/QQQQ.

My open trades are sporting open sores though right now ... I need a reversal!

59 posts
msg #81329
Ignore medowz
10/18/2009 9:46:26 AM


I'm missing something.

Question 1. What are you actually trading here on this thread: the VIX, the SPY, or some ETF?

Question2. What is the 5 day moving average actually crossing, and on which chart?

All the best!

353 posts
msg #81354
Ignore BarTune1
10/18/2009 4:43:55 PM


I primarily use the VIX divergence to tell me when the market is overbought or oversold - thats all.

Depending upon the situation, I will play the SPY - but I will also buy or short other overbought or oversold stocks that I identify through other screening criteria.

Kevin did some excellent analysis using Bollinger Bands, so there is another system where you buy or sell the SPY when the VIX crosses the upper or lower (9,2) BB. You can use leveraged or inverse ETFs, or options, depending on the circumstances and your risk tolerance to trade the indexes based on the divergence.

Personally, I primarily trade reversion to the mean, and my primary exit is - end of day, when the security crosses its 5 DMA. Kevin's backtesting indicated this trade was profitable 88% of the time. I have entered some paired trades lately by shorting high RSI(2) stocks agains lower RSI(2) stock (i.e., COP/BP a week ago) or against the Index (i.e., QQQQ/CIEN).

I use the cross of the 5 DMA as an exit for almost all trading I do - its relevant only to the security price, not the VIX index itself.

Now, in another thread, we are examining the relationship of the relative Volitility Indexes for the DOW, Nasdaq, Russell 2000 and Oil.

Currently, the Oil VIX, or the OVX is way below its lower BB, seemingly indicating a sell, so I am short oil.

StockFetcher Forums · General Discussion · VIX Variance Signal<< 1 2 3 4 >>Post Follow-up

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