X
Tired?
Unfocused?
Off your game?

Read our free Dr K report on how to optimize your mind and body so you can boost your focus when trading the markets.
YES, SEND ME THE REPORT !
NO, I'M NOT INTERESTED
Your email will always remain private.

FAQs Frequently Asked Questions

Trading Volatility Report
Please read the following before risking any money in the UVXY + Discussion of UVXY Strategy
First, please read the following before risking any money in the UVXY:

https://www.virtueofselfishinvesting.com/faqs/answer/understand-the-risks-involved-in-trading-uvxy-620-macd-before-risking-any-money

The basics behind using the 620 MACD:

https://www.virtueofselfishinvesting.com/faqs/answer/the-6-20-moving-averages-and-macd

https://www.virtueofselfishinvesting.com/faqs/answer/how-to-set-up-a-620-macd-chart

Other discussion:

The chart below shows events that led to spikes in the VIX since 2014:




When Will The VIX Spike Next?

With the VIX near all-time lows (as of October 2017), and leading stocks becoming deep sell-off targets, the market may be reaching the end of its rope. Singularly, the corner is getting tighter and tighter in terms of profit opportunities.

Ultimately, the UVXY 620 MACD will show you when to enter as we have illustrated below and discussed in prior reports.

That said, based on the first chart in this piece, the reasons behind a spiking VIX have been:

1) geopolitical tensions
2) Trump-related, ie, impeachment
3) global economic woes

One-time events have been:

1) the presidential election
2) Brexit
3) the Fed ending QE

The wildcard is the time the VIX spiked on July 27, 2017 when leading technology stocks sold off on new particular news. They then got hit again in the ensuing weeks.

Thus, the next VIX spike could be news driven or it could spike on no particular news. Therefore, it comes down, once again, to watching the action of leading stocks, the major market indices, the VIX, and the UVXY 620 MACD in context with other factors.

The UVXY 620 MACD in Action

It is important to emphasize that what happens on the UVXY 620 chart must always be interpreted in conjunction with action in the market indexes on their daily charts as well, and perhaps more importantly, from the perspective of timing entry points, their intraday charts. For example, if the indexes have been rallying for several days, and the VIX is plumbing what have been historical lows recently, then one should start watching the UVXY 620 chart for a potential high time-value entry on the long side of the UVXY. Of course, there will be other situations/set-ups that can also lead to spikes in the UVXY.

To illustrate the example of favorable entry points when the VIX is trading near significant lows, a UVXY 620 chart shown below shows a very clean move in the UVXY on August 8, 2017 as the NASDAQ was pushing to new highs. As the market churned around near the highs for most of the morning, the UVXY 620 chart gave an entry point just after 8:00 am PST when the fast line crosses above the slow line (first green arrow). The UVXY then bounced around for a while, but never dropped much, if at all, below that entry point. Two hours later, the 620 confirmation occurred when the moving averages crossed (second green arrow) and held up all day.

There was one MACD cross to the downside at around 10:40 a.m. which could have been used to take profits, but another MACD cross to the upside occurred near noon (3rd green arrow), triggering another long entry. Right into the close, the UVXY then spiked producing a 7-8% gain for the day.


UVXY 620 Chart - Tuesday, August 8, 2017


This was just a precursor to the 26% move the UVXY had on Thursday, August 10 as shown in the chart below. You can study this chart in conjunction with an index daily chart and five-minute 620 chart to see how this played out in real-time back on August 10. Note that movements following an intraday long-entry signal tend to be sharp and fast. When the market is volatile, there are usually at least 2-3 entries during the day, often preceded by exit signals.

UVXY 620 Chart - Thursday, August 10, 2017


As you can see, this is an active method and requires discipline as well as the ability to put several puzzle pieces together since the 620 chart alone is not intended as a mechanical trading system or "black box". This is a concrete approach that can be effective for disciplined, active traders. Getting carried away with greed when the VIX has a big upside move and chasing it is dangerous. Also, holding the UVXY overnight can be a gamble as it can gap higher or lower overnight so caution is advised.

The UVXY 620 MACD method illustrates how one can adapt to a specific market environment to find strategies that capitalize on potential opportunities. While a specific strategy may not work forever, the strategy overall has worked very well in the current choppy, news-oriented, and volatile market environment that we've seen since the May 2017.

In prior years, a VIX that spiked after a relatively quiet period, was sometimes followed through with further spikes to the upside on the few days after the initial spike, thus UVXY could be held overnight in such special situations with greater confidence. But so far as of May 2017, holding UVXY overnight carries greater risk of UVXY gapping lower the next day so taking end of day profits then rebuying UVXY the next day provided it offers a logical entry point has been a lower risk alternative.


First published: 9 Oct 2017
Last updated: 9 Oct 2017