With the popularity of the VIX and VIX futures being
overly used as a volatility hedge, I’ve been thinking about the signals it might give for medium term entry or exit points. If you chart the VIX and overlay Bollinger Bands (20,2,SMA) and look at the SPX, you’ll notice something interesting. Remember the VIX is forward-looking. The other indicators are price biased, and historical.
When the VIX breaks over the upper Bollinger band, you’ll see a low point directional change in the SPX. This isn’t a completely new idea, I was at a seminar recently which looked at combining this with Chandelier as a trading strategy. I’m going to just stick with the Bollinger Bands, the VIX and ATR. That’s where I see the most interesting information.
I mention ATR (Average True Range) because the 1 day ATR helps confirm long entry points.
Everything is in the chart below. The long signals look better than the short signals.