VIX measures implied volatility. Increased volatility = increased fear. 95% of action should be between the Bollinger bands.
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High volatility reflected in put/call & VIX shows sentiment of major move - low in fear market tops. High in fear market bottoms! MA’s in chart on SPX are 50 & 200. Bearish case can be made when $VIX “CLOSES” above 20.
Touch of upper band and then a move back below = great little short term trades. Note, however in Feb 2007 the move outside bands. Price stayed outside. Therefore, second test of VIX of 20 level outside upper Bollinger signifies major reversal. Usually when you see test of lower bands, market is at major peaks because nobody is worried! Market makers lower prices~ strictly supply & demand. Has not been a weekly close above 20 level in VIX since Sept of 2003.
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Bollinger bands can be effective when there is no real trend as long as there are no big mouths. When PC ratio tests the upper Bollinger August 2006, that signifies everybody is reacting to the minor decline and is buying puts out of fear. This signifies a reversal. This occurs usually within a day of a major low! Get ready to go long. 3
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INCREASES IN VOLATILITY ARE IN ANTICIPATION OF MAJOR CHANGE IN DIRECTION!
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2 closes outside Bollinger bands with %R >80 or < 20 with Bollingers outside Acceleration Bands. Buy in the money puts @ the 20 strike. 2 closes inside Acceleration Bands. %R > 20 is exit signal on this short trade. Price inside Bollinger is ok. Keltner’s are too tight for this system.
ADX 14 confirms @ 50-60. Shows trend is very strong. Price must close outside Acceleration Bands. Outside Bollingers is better.
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Look for readings in %R > 80 and < 20 and use 30 period setting. Don’t use on less than hourly time frame in general. Never less than 15 min if attempting to use this system short term. System is best when used in conjunction with sentiment indicators trading long term using daily, weekly & monthly charts. (NOTE: Headley has inverted the scale and changed the sign of the traditional Williams %R)
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One can also use this system to trade a price range: %R moves above 80 and price moves to top of Acceleration Bands BUT does not close outside acceleration bands = top of range. Go short as %R re- crosses 80 line.
BUT the best trade is the 2 closes outside bands with %R above 80. Go long. NOTE how %R drops below 80 shortly after trade is underway with two closes inside Bollinger Bands. Then price goes back above 80 line. This is a re-entry.
When position has doubled in value (using options), exit ½ of position. When position doubles again in value, sell ½ of what is remaining. Each new low near Acceleration Band becomes new stop using bottom of price bar. %R < 80 is additional filter for exit with 2 closes inside acceleration bands.
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WYNN (BELOW) IS A MONTHLY CHART: First entry was in early April 2004 when 2 closes above Acceleration Bands & %R > 80. Trend strengthened later in 2004 when Bollingers moved outside Acceleration Bands and there were 2 closes of price outside Bollingers.
Daily chart ~ one can enter ½ of position on first signal and 2nd ½ on first retest.
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Entry on this AIG trade was when price closes 2 times outside Acceleration Bands. See arrow: Do not exit here. Doji, green candle, then black candle. If black candle had closed above previous green candle, then exit. Stayed in because %R < 20 and ADX only “bent”. It did not drop in value.
On option trade, get out @ 25% loss on trade.
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Above money management method should be for day trading only due to possibility of serious gaps.
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Method 2 is to allocate 10% of the capital in a sub-portfolio for each system being traded
Sandisk~SNDK At the first arrow, buy puts! At the second arrow, go long when Bollinger’s are inside Acceleration Bands and price is declining. The uptrend is slow.
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Arrow is short re-entry point at end of plateau. Notice “bend” in ADX: price did not take out previous high, so all is well.
MISCELLANEOUS POST SEMINAR NOTES:
13 Plot SPX Daily with Bollinger on $VIX (close, 20, 2, -2,0)
Notice 10.000 level on lower Bollinger - hints of market top
Plot CBOE equity put/call ratio w/ 20 bolinger:
High put volume relative to call volume indicates bearish sentiment
High call volume relative to put volume indicates bullish sentiment
Plot Bollingers on EPCR close, 20, 2, -2, 0
After 5 days, stop yourself out if no action. Give trade 5 trading days then exit.
Put/call is a sentiment signal as opposed to technical signal. Use to confirm market direction
ACCELERATION BANDS ~ should encompass 95% of price action:
Read "SOROS ON SOROS"
Plot Acceleration Bands inside Bollingers, Plot ADX 14, plot Williams %R
Must see 2 closes inside Acceleration Band before exiting trade
Williams %R use 30 bar setting above 80% is time to buy below 20% is time to sell
Acceleration Bands & %R must be violated to exit.
Entry: each bar must close before entry ~ monthly whatever. Note “close” = 15 minutes before close so one can make entry MOC.
When %R drops below 80 look for additional entry if trade is going well.
2 bars inside on exit if 3rd price bar closes above/below 2nd day, then exit.
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