Option Volatility: Contrarian Indicator

 

Contrarian traders monitor markets and market news in order to assess broader sentiment. (For more on indicators that contrarians monitor, check out Why is the disparity index indicator important.

I have made most of my money as a trader by using contrarian trading approaches like false-breaks and my proprietary fakey trading strategy. Stop searching for the holy grail. This is the nature of a zero-sum market… money literally changes hands. Zarshad Khan August 10, at 7:

Types of False Breaks

A fading strategy bets against any move that takes the price out of a normal range. Another way of putting it is that fading is a bet on mean reversion.

I felt there was an underlying cause to my trades and you have helped me tremendously. I suspected as such on my own but you confirmed it. Hi Nial that a great article. I love the way you teach. It is what makes you unique from other mentors. Love your basic approach to trading. Keep up the great teaching! Thank you for sharing Nial Hi Nial One of the best posts. This comparison really hits home when I look back at my trades.

Te deseo muchas bendiciones y que DIOS, te colme de éxitos. Thnks for all Nial Michele. I really like this article, Nial. This is the nature of a zero-sum market… money literally changes hands. A great question that you ask: Similar to the way Jankovsky describes order flow in the market. Your email address will not be published. Any Advice or information on this website is General Advice Only - It does not take into account your personal circumstances, please do not trade or invest based solely on this information.

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Conclusion If you think of the market as a sea of competitors, and within this sea of competitors is a school of traders much like a school of fish. To your success — Nial Fuller.

Checkout Nial's Professional Trading Course here. Great article, nial…making me more confident in the market many thanks Reply. Ronald August 3, at 9: Thanks for the enlightenment, this is best knowledge i hve ever got and its increasing my capital greatly Reply. Alex September 17, at 2: Lloyd M August 31, at 9: NorahP August 28, at Gehan Manuranga August 26, at I have no words Nial, You are great Reply.

Amos August 26, at Keep the good job on my coach. Arun August 24, at 9: Thanks a lot Nial, it is a great article. Gilbert August 24, at 3: Les Pearse August 23, at 8: Great article, Its all about finding an in balance in the market. Greg August 23, at 7: Celestine Ihejirika August 23, at 6: Thank you for a great lesson Reply. Abdulhakeem August 23, at 6: Great job Nial Reply.

Anita August 23, at 5: Geoffrey Irwin August 23, at 4: Wajdi August 23, at 5: Henry E Rodríguez C August 23, at 4: Michele August 23, at 3: Thnks for all Nial Michele Reply. John VIc August 23, at 1: Excellent writing, black and white, easy to see why so hard to do. Nial your website is the best, so much to learn many thank shah Reply. Leave a Comment Cancel reply Your email address will not be published.

However, higher frequency analysis can be applied as well. That is to say, VIX or IV levels on stocks can also be tracked for shorter time frames, and even intraday. Regardless, these levels can be used to identify short-term oversold and overbought conditions, and in each of these cases, reversions to a short-term mean of IV often occur.

Thus, applying a contrarian approach provides investors the potential to yield above-average returns. The VIX index is popular as a gauge of investor moods, and it can swing wildly with high frequency. Figure 1 indicates VIX implied volatility between and There are extreme spikes above 40 during the lowest periods of the bear market in As investors become more fearful, VIX rises dramatically. Investor fear is linked with bearish markets and a rise in VIX.

As fear recedes, VIX falls as well. Still, long-term low levels of the VIX have been associated with bull markets, and VIX levels which are extremely low may signal a major market advance. This is represented in Figure 2. In and , VIX remained below 20 as the market developed significant bullish tendencies. During major market meltdowns , , , , VIX increased sharply. This indicated that a market bottom was approaching. During the market crash, for example, the VIX increased to levels above It even hit an intraday high of VIX is best viewed with moving averages, because it has a long-term trend cycle.

Figure 3 presents VIX with moving averages spanning from to day levels. This allows us to better spot short-term extreme levels, suggesting that markets are overbought or oversold. As we can see in Figure 3, spikes of VIX are smoothed with a day moving average. As the day moving averages climbs higher than the day moving averages, market conditions become bearish.