THE VIX SYSTEM

[Aparkr@xxxxxxx]

Here is an original Trading System that you will be able to use for trading
one of
the US Stock Markets indexes, SP100, SP500 or even NYSE composite index. In
effect, even if this system uses an indicator based on SP100 (OEX) options
series, the signal given can also be applied for these 2 other indexes.

"Volatility Reversal for SPX-OEX"

Data's needed:

1. Daily Close value of SP500 SP100 index or SP500 future
2. Daily Close value of Volatility Index ("VIX") : can be found in Business
Investor's daily and other financial newspapers; or from your data's vendor 
3. Bollinger Band calculation, not on the market index, but on the "VIX" (BB
indicator is present in most technical analysis software's).

This system can be used for SPX or OEX options trading, or SP500 Futures
contract trading

Buy conditions:

Buy a contract or initiate a bullish options combination IF:

1. close value of VIX is above the upper channel of BollingerBand;
BollingerBand
being calculated for the last 20 days, and the upper channel being the
standard
deviation +2% 
2. Slowk of the Stochastic Indicator (calculated on 9 days) is below 25% 
3. Closing price of SP500 or SP100 is above the opening price

Sell conditions:

Sell a contract or initiate a bearish options combination IF:

1. close value of VIX is above the upper channel of BollingerBand;
BollingerBand
being calculated for the last 20 days, and the upper channel being the
standard
deviation +2% 
2. Slowk of the Stochastic Indicator (calculated on 9 days) is above 75% 
3. Closing price of SP500 or SP100 is below the opening price

Note:
The VIX jumping above the upper BB is indicating sentiment exhaustion, be it
after a rally or a decline.


I use or at least check this system each time I want to initiate a
trade on the US Stock Markets Index. Its performance doesn't seem to decrease
with time, probably because it is based on "contrarian" parameters. In effect,
an
exhaustion of the VIX (pushing it above its upper BollingerBand) means an
exhaustion of the sentiment of the market participants: Fear or Euphoria,
which generally lead to market reversal.

Also, what makes the power of this system is its simplicity:
As it cannot be "over-optimized" (except of course the values of Stoch and
BB), it
works as well for in-sampled data's that for out-of-sample data's.