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Friday, February 15, 2008 12:29:29 PM
Volatility Trading System for the SMH.
As the market has entered an increasingly volatile time period the market remains predictable on a short term trading basis using a short term trading system based on volatility ranges.
The system uses the 10 day SMA versus the volatility indices.
When the volatility indices trade more than 10% above their 10 day sma's they always revert to the norm resulting in a market rally. When the volatility indices fall more than 10% below their 10 day sma's they always revert to the norm resulting in a market sell off. Watching RSI's, MACD, Price Channels and %B can also help determine the best trade times.
The system is show here versus the SMH. But it should be noted that options are available for trading the VIX and VXN now as well so they can be traded outright.
The ten day sma's are marked in green. A simple calculation for determining when volatility is stretched to high and should result in a market rally is simply to see if the VXO, VIX, and VXN have ten day sma's more higher than where the the ten day sma is times 1.10.
A simple calculation for determining when the market is overbought and likely to sell off is to multiply the 10 day sma by .90. If the VXO, VIX and VXN are all below the individual result then the market is due to sell off.
Here are the charts:
As the market has entered an increasingly volatile time period the market remains predictable on a short term trading basis using a short term trading system based on volatility ranges.
The system uses the 10 day SMA versus the volatility indices.
When the volatility indices trade more than 10% above their 10 day sma's they always revert to the norm resulting in a market rally. When the volatility indices fall more than 10% below their 10 day sma's they always revert to the norm resulting in a market sell off. Watching RSI's, MACD, Price Channels and %B can also help determine the best trade times.
The system is show here versus the SMH. But it should be noted that options are available for trading the VIX and VXN now as well so they can be traded outright.
The ten day sma's are marked in green. A simple calculation for determining when volatility is stretched to high and should result in a market rally is simply to see if the VXO, VIX, and VXN have ten day sma's more higher than where the the ten day sma is times 1.10.
A simple calculation for determining when the market is overbought and likely to sell off is to multiply the 10 day sma by .90. If the VXO, VIX and VXN are all below the individual result then the market is due to sell off.
Here are the charts:
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