Superior Trading Skills through Education

Volatility - Vix - wow! Print
Written by Site admin   
Tuesday, 13 February 2018 14:19

Well that was an exiting few days as the Vix broke out....

The US dollar is fighting back as top dog, stock markets swoon and the VIX, CBOE volatility index rocketed from its old ceiling of 15 up to 50+ then back down to 25! Is this the big one?

Some stock traders have been puzzled and craving volatility, incredulous that the S&P kept climbing almost day after day for months. No one was selling. The market would only go up, despite the Feds raising interest rates and telling us QE was history.

The best game in town was to keep buying stocks and sell volatility by shorting the VIX with the XIV. The XIV is a nice little, inverse contract, that allowed option sellers a sure thing - it soon became a one way bet - and then it didn't.

Last week it was trading at around 140, today, 6 and untradeable. Blown away, taking with it a variety of gunslinger traders and a few hedge funds with plenty of other people's money.

There's an old saying: "The trading Gods must be satisfied". It refers to that aspect of trading psychology when hubris takes over. Arrogance and certainty of the future is so often displayed by newbies and those sucked in by a good story.

By some primeval law, the saying "Pride comes before fall" applies and the markets surely knock those traders' accounts down to size. Those who have been most arrogant and certain of the future become forced to make the biggest sacrifices to the trading Gods.


From the blog

Hammers and Shooting Stars

One of the very best Candle patterns is also the simplest to identify. The Hammer looks a little like one, it has a long lower wick/tail/shadow with a small head. Ideally, it is an up Candle, where the close is higher than the open, but that's not vitally important.

There are two important qualifiers. Firstly, it needs to be found in the right place and there also needs to be evidence of involvement. A Hammer is a reversal Candle, but only when it is found after a decline. At number of prior down bars must precede it. The second qualifier is involvement and that can be seen from observing the volume on futures or stocks, or tick activity with Forex charts. The higher the volume plot the better, but it should be at least greater than the average of the last three plus bars. Why is this? read on...


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