Is the DAX Open Strategy BROKEN when the VIX Index goes down?
I don’t think the DAX breakout strategy works when the VIX is hitting lows.
So what is the VIX index?
It is a real-time index that represents the market’s expectations for the relative strength of near-term price changes of the US 500 Index.
Basically investors use the VIX to measure the level of risk, fear, or stress in the market when making investment decisions.
The VIX generally rises when stocks fall, and declines when stocks rise.
Volatility value, investors’ fear, and VIX values all move up when the market is falling.
The reverse is true when the market advances — the index values, fear, and volatility decline.
The price action of the US 500 and the VIX often shows inverse price action: when the 500 falls sharply, the VIX rises — and vice versa.
As a rule of thumb, VIX values greater than 30 are generally linked to large volatility resulting from increased uncertainty, risk, and investors’ fear.
VIX values below 20 generally correspond to stable, stress-free periods in the markets.
The long-running average of the VIX has been around 21.4.
High levels of the VIX — normally when it is above 30 - can point to increased volatility and fear in the market, often associated with a bear market.
Here is the VIX Index for the past six months…
As you can see it has come down quite sharply, and the DAX Breakout has stopped working.
It came down at the beginning of September, again the DAX breakout failed, and July was also a bad month for the DAX breakout — lo and behold, the VIX was hitting its lows.
And now to the crux of the matter.
Why?
Why is this happening?
I don’t get it.
For once I am completely baffled by this.
So if you’re reading this and you know why this is happening please leave a comment, I would be so grateful.
Thee does seem to be a correlation though, but I have no idea why.
The strategy is in bold towards the end of this piece. Maybe by reading that you will get a clue.
Anyway, on with the trading day.
I traded half a position size on the DAX breakout for the reasons I have outlined above.
It triggered, slowly went up five points, and just as I was waiting for my winning sixth point, it reversed.
I managed to get out for PLUS £5.
It was that slow I was literally able to manage the trade — something I could never normally do in normal market conditions.
Remember this trade sometimes gives me PLUS £600 in less than a second.
So I got out for, effectively, break even and then it reversed the other way and I would’ve lost. A good move by me.
I took the advanced school run — see www.tradertom.com for this strategy — with some trepidation.
We seem to have been in a range forever, well for a few days, which in trading IS FOREVER.
But it broke to the upside and I was able to grab 16 points and PLUS £402.50 before it came back down again.
So two good morning trades to give me PLUS £407.50 for the session.
I wasn’t trading anything else, not in the current climate.
I am getting quite excited by the US 500 breakout strategy on the open that I am backtesting.
I’m going to give it 20 days of refinements and tweaks before going live with it.
Today I was £400 in profit straight off the open — I could have scalped for that and would’ve been relatively happy.
I was able to take my stop to break even and was looking for £200 more but unfortunately was stopped out for zero, hey ho.
It would have won though in the end.
So all good.
The beauty of this strategy is I can keep my opposite trade on, at least until the end of the day and try to go the other way, and because it doesn’t move as fast as the DAX breakout I can manage it quite easily.
BUT…When it broke the other way it did lose for MINUS £900, so maybe like the DAX, it is a one way trade.
Or maybe I should go to break even quicker.
This is a strategy that WILL need a few tweaks
I also have a swing trade open on the GBPUSD which is currently PLUS £302 in profit with my stop now moved to break even.
I have set an alarm just in case I get stopped out, though whether I will re-enter the trade depends on the signals.
On the US500 8th candle I wasn’t getting good buy/sell signals so I held off.
We had 12 breaks, one to the upside and 11 to the downside, none of them could hold.
Eventually we did break but it didn’t look strong at all, so I resisted.
I would LOVE to hear your thoughts re: the DAX and the VIX correlation - so please leave your comments.
YOU CAN READ ABOUT THE DAX OPENING BREAKOUT STRATEGY HERE https://readmedium.com/start-your-trading-day-with-a-bang-957bad208b7b
DAX 7am CANDLE STRATEGY = MINUS £47
DAX OPENING BREAKOUT TOTAL = PLUS £2,780
DAX ADVANCED SCHOOL RUN TOTAL = PLUS £431.70
DAX SCHOOL RUN = PLUS £396.48
FRANCE STRATEGY = MINUS £1,537
DOW BREAKOUT STRATEGY = MINUS £1,025
SWISS 20 STRATEGY = MINUS £1,014.60
DOW PRE-MARKET OPEN STRATEGY = PLUS £167.50
US500 8th CANDLE STRATEGY = MINUS £748.25
FTSE TRADES = MINUS £1,028
NASDAQ TRADES = PLUS £592.50
SWING TRADES: MINUS £323.12
END OF THE MONTH RALLIES: PLUS £696.60
NON-FARM PAYROLL MONDAY: PLUS £274.50
OTHER TRADES = PLUS £2,732.65
TODAY’S TOTAL = PLUS £407.50
OVERALL TOTAL = £70,098.32 (excludes £2,000 withdrawal = £72,098.32)
PAPER TRADES
DAX 7am CANDLE STRATEGY = PLUS £387.50
DOW PRE-MARKET OPEN = MINUS £750
DOW OPEN TOTAL (DAY 11) = PLUS £30
DOW 2 MIN CANDLE TOTAL (DAY 8) = PLUS £527.50
DAX ADVANCED SCHOOL RUN (DAY 8) = PLUS £1,826.87
DAX SCHOOL RUN (DAY 8) = MINUS £374.87
FRANCE STRATEGY (DAY 8) = PLUS £353.54
US500 STRATEGY (DAY 2) = PLUS £618
NEWS BREAKOUT STRATEGY DOW = PLUS £300
US500 3/4.5 breakout (Day 2) = Opening trade PLUS £600, Second Trade MINUS £900
OVERALL TOTAL = PLUS £2,618.54
Disclaimer: The information provided in this article is for educational purposes only and should not be considered as financial advice. Trading involves risk, and it is important to conduct thorough research and seek professional guidance before making any investment decisions.
