Thursday, May 20, 2010

A Two-fer Approach

This is just another case where two heads are better than one. In this case tracking the NYAD and the VIX concurrently on 2 minute bars to better judge the timing and strength of possible market trend reversals as well as to confirm those reversals. You can use 1 minute bars if you're really antsy.

The NYAD and the VIX trading ranges are substantially different. On days like Wednesday the NYAD can move 200% or more with ease while the VIX, although the embodiment of volatility, tends to stay below 15% daily moves. As a result, some scaling issues are presented with the NYAD which complicate a trader's ability to see a changing trend.

Looking at the VIX helps to clarify exactly what's going on with the NYAD. Using the same suite of indicators . . parabolics, 3 SMAs, and 8/8 hi/lo channel . . makes it a lot easier to grasp what's going on. Even when it looks like the NYAD is just plodding along the VIX tells us that there is underlying movement and it tells us the direction of that movement.

As a little bonus I've also got the VIX chart overlaid on the NYAD chart to generate the VIXEN signal, but the real impact is felt when you look at the actual VIX chart and observe the indicator dynamics.

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