The Volatility Index 75, better known as the VIX, offers traders and investors a real-time view of greed and fear while providing an overview of market expectations of volatility over the next 30 trading days. The volatility-based securities introduced in 2009 and 2011 have proven to be very popular among traders, both for hedging and directional play. In turn, the buying and selling of this instrument have a significant impact on the function of the original index, which has changed from being lagging to being a leading indicator. You can read more at http://www.volatility75.net/.

Active traders should keep the VIX real-time on their market screens at all times, comparing trend indicators with price action on the most popular index futures contracts. The convergence-divergence relationship between these instruments generates a set of expectations that help in trade planning and risk management. The VIX daily chart looks more like an electrocardiogram than a price display, producing vertical spikes that reflect periods of high pressure, caused by economic, political, or environmental catalysts. It is best to watch absolute levels when trying to interpret this jagged pattern, looking for reversals around large integers, such as 20, 30, or 40, and near their previous peaks. Also pay attention to the interaction between the indicator and the 50 and 200 days EMAs, where these levels act as either support or resistance.

The VIX settles into a slow-moving but predictable movement among periodic stressors, with the price level rising or falling slowly over time. You can see this transition clearly on the monthly VIX chart showing the unpriced 20 months SMA. Notice how the moving average peaked above 33 during the 2008-09 bear market even though the indicator pushed up to 90. While this long-term trend won’t help in short-term trading preparations, it comes in handy in a market timing strategy, especially in positions that last a minimum of 6 to 12 months.