US500 neutral

VIX and S&P 500 duo

07 july 2022 59
Elena_Berseneva
Elena_Berseneva

Listed among the best MarketCheese authors
1st in the segments "Indices", "US stocks" and "Metals"
2nd in the segment "Currencies"
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The research "Does the CBOE Volatility Index (VIX) Affect Financial Markets?" has identified the benefit of the VIX index to forecast the S&P 500 movement. On top of that, the VIX may be regarded as the 1-hour leading indicator.


Recently, inflation in the United States has greatly exceeded the country's average of 2%. To combat a price increase, the Fed tightens monetary policy and raises interest rates. Alternatively, history shows that during the inflation of more than 5%, the Fed’s actions led to an economic recession. In the course of time all events take place again in one or another way. If so, the S&P 500 may fall another 10-20%. The index is currently trading around 3850.


In addition, it is summer, meaning a traditional period of certain decline in the American stock market.




Thus, in view of the aforesaid, the trading options can be the following:


1. Only short positions anticipating the S&P 500 decline:


* Look for H1 quotes of the VIX implied volatility in open sources.

* Trade on the one-hour timeframe, while the Fed tightens monetary policy, at least until July 27th.

* Upon the closing of every hour, take into account whether the VIX is rising, falling, or remaining unchanged.

 

In case of the VIX growth, it’s a good practice to sell the S&P 500 at the moment the next trading hour begins.

Close the deal at the beginning of the hour as soon as one notices a decrease or no changes in the volatility index for the previous hour.

 

Limit the losses via the protection order Stop Loss by placing it above the previous hour maximum. 


 

2. Strategies based on the leading VIX index:


* Look for H1 quotes of the VIX implied volatility in open sources.

* Trade on the one-hour timeframe.

* Upon the closing of every hour, take into account whether the VIX is rising, falling, or remaining unchanged. 


If the VIX increases / decreasesbuy/sell S&P 500 at the moment of the next trading hour.

Close the deal at the beginning of the hour as soon as one notices an increase / a decrease or no changes in the volatility index for the previous hour.

 

Stop Loss is placed above the maximum / below the minimum of the previous hour.


 

A session to trade is determined by the individual, however, the European and American ones are considered the most active.

 



Attention!

Trading on financial markets involves high levels of risk and can result in the capital investment loss. The MarketCheese team is not liable for possible loss of your investment funds.

Elena_Berseneva
Elena_Berseneva

Listed among the best MarketCheese authors
1st in the segments "Indices", "US stocks" and "Metals"
2nd in the segment "Currencies"
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