The VIX, or Volatility Index, can be utilized to time your trades to the market. This market timing system was developed by Larry Connors and has turn into often known as Connors VIX Reversals. It is used to establish when the general market (S&P 500) is more likely to reverse.
Keep a watch on this indicator and use it along with your common market timing technique.
What is the VIX?
The Volatility Index (VIX) measures future volatility. It supplies us with indication of the extent of worry and greed out there.
Volatility is imply reverting. This signifies that durations of excessive volatility will ultimately revert to their imply and durations of low volatility will ultimately rise to their imply.
High readings often happen after a market sell-off and it would be best to be specializing in lengthy positions. Low readings often happen after a rally and also you wish to be specializing in brief positions. We all the time do the alternative of the group!
Here is a chart:
chart of the Vix
There are about 10 various kinds of VIX reversals (known as CVR alerts). Here are two of them:
Using the 10 interval shifting common
The first one makes use of the 10 interval shifting common. You can see this shifting common on the chart above. When the VIX will get 10% above the 10 interval shifting common, the S&P 500 will probably be promoting off. It has reached an excessive and will probably be more likely to reverse again to the upside.
You wish to be on the lookout for lengthy setups as a result of this has accurately predicted market course practically 70% of the time!
This is the alternative for brief setups. Look for the VIX to get 10% under the 10 interval shifting common to search for brief setups.
Using the RSI indicator
The second one makes use of the RSI indicator with a 5 interval setting (see chart above).
When the RSI will get above 70 the VIX is overbought and the market is oversold. Look for lengthy setups. When the RSI will get under 30 the VIX is oversold and the market is overbought. Look for brief setups. I’ve marked the chart above within the RSI panel with inexperienced and crimson arrows to indicate you the lengthy and brief alerts.
Remember that the VIX reversals are used to establish market extremes within the S&P 500. So to ensure that these alerts to be vital, it would be best to use them to commerce this index itself (SPY) or discover charts of shares that look much like the chart of the S&P 500.
Read extra about these VIX reversals (and fairly just a few different brief time period buying and selling methods) within the e book, Short Term Trading Strategies That Work.
Once you begin to study the VIX reversals, and start to see how usually the market really reverses while you get a number of alerts all pointing in the identical course, you’ll notice simply how worthwhile this information is. You will even acquire an unlimited edge over different merchants!