Volatility Indexes: Introduction To A Series

Traders know that there must be movement in the market for trades to happen and money to be made. Your style of trading determines how much movement you enjoy. For those that love volatility, the lack of movement can be painful. You can still make money when it is a slower moving market, but you can make so much more when there is volatility. It is easier to trade when the volatility is up rather than down. Anything that can follow a trend is easier to trade. When the market is up and then down is a chop zone which means you might want to consider scalping, range bound or neutral trading strategies. Most traders are familiar with the VIX. Introduced in 1993, the CBOE's Volatility Index (VIX) measures market "expectations of near-term volatility conveyed by S&P 500 stock index option prices." Using the VIX as one of you tools while trading can be very helpful, but you will also want to be able to analyze the high and low volatility on the VIX. To do this, simply put on a simple moving average of 100. You can also put on the setting of a 200 day moving average which is the industry standard moving average. This chart shows where to add in the settings. To view a larger image click HERE. 192s_image1 Adding in this setting plots a line that allows you to see where the market is high or low. This chart shows the defining line that will help you know whether the market is high or low: If the movement is above the green line, it is high volatility. If it is below, it is low. To see a larger chart, click HERE. Did you know that there are many more Volatility Indexes out there? A lot of people don't know about these. On the CBOE Volatility Index page, you can learn about the many different indexes that are available. This can help you in your trading! After going to the link above, click on the Products page, then click on the VIX Index & Volatility, then Volatility. There you will see the many different volatility indices listed. What if you trade Nasdaq? There is the VXN. What if you trade the DOW? There's the VXD. If you trade the Russell, there is the RVX. Say you are an Oil trader. You have the OVX. Gold? There's the GVZ. This article is the beginning of a series of articles to help you in your trading using the different volatility indexes available. Knowing the Implied Volatility (IV), which is the expected movement built into the price of an option, can help you in any option-based market. Just like air in a tire, IV has been described as getting more expensive as it pumps up. Let out the air, the tire goes down and the price gets less expensive. Options get more expensive and less expensive depending on expected movement. Using a Volatility Index can help you whether you trade ETFs(Exchange-Traded Funds), Futures, Stocks or Nadex Binaries. By consulting a Volatility Index that relates to the market you are trading, you are using another tool to aid you in predicting how the market will move. This will then allow you to choose the proper strategy and system that will enable you to capture profit. For further education on how to implement the use of Volatility Indexes into your trading, go to Apexinvesting.com, a service of Darrell Martin.