Wednesday, March 25, 2009

VIXEN daytrading

Contrary to the contention I made several weeks ago that the VIX was only useful for trading on daily bars, here are 2 examples of using the VIX/price cross on intraday bars to forecast short term momentum. The VIX (close) is displayed as a continuous white line on both charts.
Above is Monday's action on 5 minute bars, below is portions of Monday/Tuesday's action on 2 minute bars. On the upper chart I've also highlighted with white arrows the midpanel technical short term buy setups to see how (or if) they correlate. Clearly, the midpanel 3/7 SMAs and the Monday's early VIX/Price cross were great prognosticators of what was coming down the pipe for the rest of the day, whereas the late afternoon breakout was clearly forecast by the failure of the MACDs to turn down.
The VIXEN studies are obviously a work in progress, but I'm certainly encouraged from my initial forays that the VIX/Price crosses can provide useful intraday guidance in both trending and trading range environments.
I've previously mentioned my confidence in intraday NYAD/Price divergent trades using GE as an example and I typically maintain a NYAD overlay on the intraday price charts. My problem now is determining whether it is more indicative to have a NYAD or a VIX overlay on the charts. For the time being I've just duped my main trading screen . . . setting one up with the VIX and one with the NYAD to see how trades set up.
More to follow as I pursue the VIXEN coding and backtesting project.


Bill said...

greatly admire your work, when are going to start trigers for dirty q's. looking forward to it.

also this vix crossing dont you think its how you map/overlay the charts determines whether it crosses or not. Vix will not have same atr all the time and hence it chart would change a lot. not sure if i was able to explain my thoughts


bzbtrader said...

You are correct and make a very good point. Using the VIX/price crosses on a dynamic 2 or 5 minute bar daytrading chart is different that using it in a static daily bar format. Today's intraday Vix crosses will not show up the same on tomorrow's chart and those using the VIX crosses to trigger or confirm trades need to be aware. Just as the pivots reset each day, the daily scales and ranges reset, and the relative VIX crosses also reset. .which could be confusing (to put it mildly) when trying to go back a day or two and review previous VIX cross triggers.
Thanks for the astute observation.

R Toffel said...

I think this scaling issue also affects the MACD vs SMA crosses...I am very interested to see how all this looks on one scale.