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Market Mood
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Created: by worldwary Attachments:11

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Market Mood

  #21 (permalink)
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worldwary View Post
2. The VIX. This is a volatile measure but the level of the index as you start the trading day can give you a rough guide of how much volatility to expect on an intraday basis. As a general guide, I think of anything below 18 as low volatility; between 18- low 20s is mild volatility; mid-20s or higher is high volatility. But I also think these gradations change over time.

The last part is interesting because things feel far more volatile than 16 right now.
I think things will become more clear when the SKEW becomes more common.
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Here are two smaller daily charts of skew, second one is for 2011. I'm not totally sure what to make of it so far though other than since summer 2010 we have in general had a decreasing VIX but increasing SKEW.

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Market Mood-skew.jpg   Market Mood-2011skew.jpg  
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  #22 (permalink)
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Today was also a very narrow range day. I've heard it said as a rule of thumb that you should expect a narrow range day the day after a big directional move. However, I haven't developed this into a concrete rule.

Does anyone have a particular rule you use when trying to anticipate narrow range consolidation days like today?

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dutchbookmaker View Post
The last part is interesting because things feel far more volatile than 16 right now.
I think things will become more clear when the SKEW becomes more common.

I'm not totally sure what to make of it so far though other than since summer 2010 we have in general had a decreasing VIX but increasing SKEW.

Interesting, thanks. I haven't typically followed the SKEW but will look into it.

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When's the best time to go fishing?

When the fish are biting.

If they aren't biting ... changing baits and using a different boat won't help.

Whether or not the fish were biting today ... has no bearing on whether they will bite tomorrow.

It never occurred to me to ask what mood the fish were in.

I'm just a simple man trading a simple plan.

My daddy always said, "Every day above ground is a good day!"
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worldwary View Post
Interesting, thanks. I haven't typically followed the SKEW but will look into it.

They really only started publishing the data in Feb.
Volatility Futures & Options: CBOE SKEW Index, Part 3

I don't think that rule of thumb you mention is a terrible idea with the VIX this low. On the other hand I try to not think that way as that would also be a great way to miss a nice move.
I've never investigated it but I would imagine the higher the VIX, the better chance for consecutive days with large moves. Quantifying high/low VIX and large/small moves becomes an issue though to try to test that.

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dutchbookmaker View Post
I don't think that rule of thumb you mention is a terrible idea with the VIX this low. On the other hand I try to not think that way as that would also be a great way to miss a nice move.

The primary issue from my perspective is whether to favor breakout entries where you get into a trade very quickly after a S/R level is broken. Today was not a good day for breakouts as we were rangebound; on days like that there's a good chance that your entry gets triggered and instantly reverses into a loss.

If you went into the day with an anti-breakout bias, then you might miss the beginning of a move but could theoretically still enter the same move later on assuming you had an appropriate entry method in your toolbox.


dutchbookmaker View Post
I've never investigated it but I would imagine the higher the VIX, the better chance for consecutive days with large moves. Quantifying high/low VIX and large/small moves becomes an issue though to try to test that.

Interesting point; I'll see if I can think of a way to quantify this.

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ThatManFromTexas View Post
When's the best time to go fishing?

When the fish are biting.

If they aren't biting ... changing baits and using a different boat won't help.

Whether or not the fish were biting today ... has no bearing on whether they will bite tomorrow.

It never occurred to me to ask what mood the fish were in.

Thanks for your input; I always enjoy reading your witty posts.

I realize that the philosophy of what I'm doing in this thread won't appeal to all traders, and that's fine as we all need to do what works for us. There are many ways to skin a cat (to add another animal metaphor to the mix).

Fishing is actually a really good analogy for what I'm proposing if you look at it in a slightly different way. Maybe you normally fish in one part of the lake. Then you run into a dry spell and notice that the fish aren't biting as much as they used to. So you shift to another part of the lake, maybe find better luck there. You might even start to find patterns: on hot days fish stay in the deep water, at dusk they move to the coves, or whatever.

One approach is to fish the same spot all the time. Maybe there really isn't a deeper pattern governing where the fish are, or there's a pattern but it's not worth looking for as it's simpler to just stay consistent. Another approach is to move to the spot where you think the fish are most likely to be at the time.

Each approach might work fine and each approach has its own risks. I think it boils down to a question of what you have most confidence in: the ability of the system to generate returns if traded consistently, or your own ability to read the signs and adapt to what the market is giving you at the moment.

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worldwary View Post
Thanks for your input; I always enjoy reading your witty posts.

I realize that the philosophy of what I'm doing in this thread won't appeal to all traders, and that's fine as we all need to do what works for us. There are many ways to skin a cat (to add another animal metaphor to the mix).

Fishing is actually a really good analogy for what I'm proposing if you look at it in a slightly different way. Maybe you normally fish in one part of the lake. Then you run into a dry spell and notice that the fish aren't biting as much as they used to. So you shift to another part of the lake, maybe find better luck there. You might even start to find patterns: on hot days fish stay in the deep water, at dusk they move to the coves, or whatever.

One approach is to fish the same spot all the time. Maybe there really isn't a deeper pattern governing where the fish are, or there's a pattern but it's not worth looking for as it's simpler to just stay consistent. Another approach is to move to the spot where you think the fish are most likely to be at the time.

Each approach might work fine and each approach has its own risks. I think it boils down to a question of what you have most confidence in: the ability of the system to generate returns if traded consistently, or your own ability to read the signs and adapt to what the market is giving you at the moment.

When's the best time to go sailing...

When the wind is blowing.

If the wind ain't blowing, you can adjust your sails 'til the cows come home, you still ain't going nowhere.

Where to sail , what to do when the weather changes, what to do in choppy seas... is stuff you should already know before you put a boat in the water.

I'm just a simple man trading a simple plan.

My daddy always said, "Every day above ground is a good day!"
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Here's my interpretation of what the market's been trying to tell us the past few days:

[Engraved Invitation]

Dear Trader:

If you've been waiting for a chance to get long, now would be the time. This invitation stands until further notice.

Sincerely,

The Market


Last edited by worldwary; April 20th, 2011 at 08:51 PM. Reason: Fixed a typo
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The market has been saying that for awhile.
One thing I notice is that when the VIX is around this low level of volatility there is a better chance to have absurd range days like today. I think if you ignore volatility measures you are missing out on a huge part of what algorithmic trading is doing.

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