MDA - Market Direction Analysis

[Tom K]

Augieboo, I think you might be expecting too much from VIX.

I'm looking at the book Research Driven Investor by Tim Hayes of Ned Davis Research, page 180. It shows a chart of VIX's eight-day smoothing / 64-day smoothing (log scale) from 4/23/86 to 3/30/00. Believe me, VIX didn't just start going whacky in the late nineties.

Here's how NDR uses VIX: "When the ratio of the index's eight-day smoothing to it's 64-day smoothing rises above the upper parameter (105), buy signals are generated. Sell signals are produced when the ratio drops below the lower parameter (85). Buy signals are stopped out by 11% declines.
Profitable Long Trades: 94%
Gain/Annum: 18.5%.
Buy and Hold Gain/Annum: 13.9%

I don't use VIX as a red and green trading system/indicator like NDR does. I prefer to use bollinger bands and PPO and don't get too hung up on specific ranges. What's important is to watch for reversals, not levels.

My VIX indicator: