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Profiting From trading 2 Markets that Move the INVERSE from one another .........
Started:October 12th, 2016 (08:31 PM) by md1933 Views / Replies:237 / 5
Last Reply:October 13th, 2016 (09:40 AM) Attachments:0

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Profiting From trading 2 Markets that Move the INVERSE from one another .........

Old October 12th, 2016, 08:31 PM   #1 (permalink)
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Profiting From trading 2 Markets that Move the INVERSE from one another .........

Good Evening,

I need some help in understanding a concept .......... My thought is that , if 90% - 100% of the time ,that the VIX moves in the Opposite direction of the ES and YM ( this is theoretical of course ) , but these Markets do seem to Move Inversley from one another , almost Everyday I look over the Indexes

If this is the case, and a great setup ( Based on my trading Method ) occurs via analysis of the Chart(s) , then would it ever make since to trade either the ES or the YM in the Opposite direction that I am expecting the VIX to move ?

So if I am assuming the VIX to move to the upside, then I'd short the Ym and or the ES ( No matter if I get a great setup on the ES or YM )

This all might not be a smart way to trade , since I'm sort of going on Blind faith in trading 2 Markets Inversley of one another , when only ONE of the Charts on any given day, is likely to give me the setup I look for on any Market to place a trade

Thank you for any thoughts and comments

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Old October 12th, 2016, 08:31 PM   #2 (permalink)
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Old October 12th, 2016, 09:00 PM   #3 (permalink)
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Correlations


I don't trade or know much about the VIX, but I do know about correlations, all of my trades are based on them: ES with YM, ZB with ZN, and the inverse correlation of 6E and DX. While these correlations work most of the time, a part of my trading methodology does require independent evaluation of each instrument. What i mean is, the correlation itself is only a part of my evaluation to put on the trade.

If you have interest in correlations in general I would highly suggest MRCI Online. I check it daily.

Vive memor leti fugit hora - Live mindful of death, the hour flies
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Old October 12th, 2016, 09:34 PM   #4 (permalink)
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I'm not familiar with the VIX but is its value not derived from the S&P?

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Old October 12th, 2016, 11:36 PM   #5 (permalink)
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Correlations don't always hold up

Futures Edge on FIO

Are you a NinjaTrader user?

 
If you think the VIX will rise, why wouldn't you just go long the VIX?

Correlations don't always hold up and so trading a different security solely based on your opinion on the direction of the base security actually lowers your probability on the trade.

Think of it this way...

You have a 70% conviction that Security A will rise
Security B is negatively correlated to Security A 80% of the time

70% x 80% = a 56% probability that Security B will fall versus a 70% probability that Security A will rise

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Old October 13th, 2016, 09:40 AM   #6 (permalink)
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happyrenko,
that Grid Correlation ( MRCI ) is fantastic

Thank you for sharing

Do you know if such a Grid Correlation occurs for the Forex markets ?

MWG86

I never thought to calculate out the wau in which you did, regarding the Probabilites of two " Inversely Correlated Trades "
It definitely makes sense now

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