The CBOE
Volatility Index (VIX) is a sentiment indicator that passively reflects the stock market movements. Therefore, the VIX is not used to predict the
direction of the market. Instead, it
should be applied to identify sentiment extremes.
Dramatic
and unexpected stock market deterioration usually causes the extravagant spikes
in the VIX reading as panic dominates and penetrates the investor’s mind. If the spikes go beyond a specific level
measured by the moving average of VIX or normal range, then it indicates that a
gigantic bearish sentiment can spur a market recovery.
Technically
speaking, when the market drops, the VIX can better detect the reversals.
On
the other hand, a sustainable and robust stock market gain yields a gradual
downward and comparatively depressed level for this index. Undue bullishness makes it challenging to
foretell if the market is going to continue its trending path. Therefore, the VIX can better detect the
bottom than the top. It would be wise to
apply the VIX accompanied by other technical indicators to identify the
imminent market reversals.
You
can let more about the VIX by reading the following articles:
Credited
to: http://www.investopedia.com/terms/v/vix.asp
Thanks
for your visiting and reading.
Have
a profitable trading!
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