{"id":15085,"date":"2019-10-19T07:30:17","date_gmt":"2019-10-19T11:30:17","guid":{"rendered":"https:\/\/www.jeffclarktrader.com\/?p=15085"},"modified":"2019-10-19T07:30:17","modified_gmt":"2019-10-19T11:30:17","slug":"15085-2","status":"publish","type":"post","link":"https:\/\/jeffclarktrader.com\/market-minute\/15085-2\/","title":{"rendered":"A Simple Signal Most Traders Don\u2019t Use"},"content":{"rendered":"

Mike’s note:<\/strong> For this week’s Saturday edition, I got with Jeff to answer some of the biggest trading questions on your minds this week.<\/p>\n

Let me just say… It’s been encouraging to see so many of you applying Jeff’s techniques and making profitable trades – both from Jeff’s advice and your own ideas.<\/p>\n

And if you haven’t already, be sure to sign up for Jeff’s first-ever stock-trading summit this coming Wednesday at 8 p.m. ET<\/a>. When you sign up, you’ll get access to an exclusive, live training session with Jeff on Monday morning… and give you an edge on what Jeff predicts will be a wild trading day.<\/p>\n

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Reader question:<\/strong> Jeff uses Bollinger Bands<\/a> a lot. What are the parameters he uses to configure his bands? I would like to match his. Thanks.<\/p>\n

– Michael<\/strong><\/p>\n<\/blockquote>\n

Mike’s response:<\/strong> Thanks for your question, Michael. And for being a subscriber.<\/p>\n

The parameters for Bollinger Bands are made up of two numbers. The first is the period of the moving average line, and the second is the number of standard deviations away from that line to plot the top and bottom bands.<\/p>\n

The standard, most widely used parameters for the Bollinger Bands are the 20-period moving average<\/a>, and to set the top and bottom bands two standard deviations higher and lower from that average, respectively. And these are the settings that Jeff typically uses when charting.<\/p>\n

On StockCharts.com, the default settings appear like this:<\/p>\n

\"\"<\/p>\n

Of course, a trader can use a different period for the moving average (the first number) and plot the bands with however many standard deviations (the second number) they like.<\/p>\n

But when looking for things like VIX buy\/sell signals<\/a>, it’s best to stick to the default settings.<\/p>\n

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Reader question:<\/strong> My broker, Charles Schwab, tells me there is no such symbol as WTIC, and I can’t find the company you mentioned. Why is that? Is there another ticker for this?<\/p>\n

Thanks for your great service!<\/p>\n

– Jacquelyn<\/strong><\/p>\n<\/blockquote>\n

Mike’s response: <\/strong>Hi Jacquelyn, thanks for writing in. And we’re glad you’re enjoying the service.<\/p>\n

“$WTIC” is the symbol for the oil commodity on StockCharts – representing the spot price of West Texas Intermediate Crude. It’s not an actual stock or ETF… Rather, it’s just how StockCharts represents its oil price data.<\/p>\n

While it’s good to use the spot price for oil when looking for a trade opportunity on it, that symbol can’t be traded through a regular brokerage account.<\/p>\n

If you’re looking for a way to trade oil through a regular brokerage, take a look at the United States Oil Fund (USO). And you can find a list of other ways to trade oil right here<\/a>.<\/p>\n

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Reader question:<\/strong> I read your article about the VIX<\/a>. I have a question about it.<\/p>\n

What makes up the VIX? What causes it to go up or down? There seems to exist a self-fulfilling prophecy where everyone is looking at the VIX and reacting to it… Then that’s what causes the moves.<\/p>\n

If everyone took the opposite view, then the stock market may not follow that trend. Just some thoughts. I like your thinking and views on the market.<\/p>\n

– Jerry<\/strong><\/p>\n<\/blockquote>\n

Jeff’s response: <\/strong>Thanks for writing in, Jerry.<\/p>\n

Most folks just refer to the VIX as the “market’s fear gauge”… which doesn’t tell you a whole lot.<\/p>\n

Really, the VIX measures the implied volatility of S&P 500 options. Typically, when investors are expecting higher levels of volatility, they’re willing to pay more for options. When investors are comfortable – meaning they’re not expecting volatility – then option premiums usually shrink. These premiums are what determine the “implied volatility.”<\/p>\n

So, a low VIX means investors are complacent. A high VIX means investors are scared.<\/p>\n

Of course, plenty of investors watch the VIX every day. So, naturally, the market’s reactions to its moves will contribute to its future moves.<\/p>\n

But what most investors DON’T do is use the VIX alongside other important indicators.<\/p>\n

As easy as it is to do, and as accurate as the signals have been over the past few years, I’m surprised that more people don’t use signals like the VIX relative to its Bollinger Bands<\/a>, and the difference in premiums on VIX calls vs. VIX puts<\/a>.<\/p>\n

For whatever reason, they don’t. So, we can still use those signals as valid market-timing tools.<\/p>\n

If, however, we ever do get to the point where the majority of market participants start paying attention to these signals, they will lose their effectiveness. And, we’ll have to adjust our parameters to gain an edge. <\/p>\n

But for now, we can just follow the signals.<\/p>\n

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Reader question:<\/strong> Interesting that the VIX calls are so much more expensive than their puts.<\/p>\n

But what about the VXX? Its puts are more expensive… What gives?<\/p>\n

– James<\/strong><\/p>\n<\/blockquote>\n

Jeff’s response:<\/strong> Thanks for your question, James.<\/p>\n

VXX options trade American-style. So, the calls and puts should be almost equivalently priced. <\/p>\n

Keep in mind, though, that VXX is made up of futures and options contracts on the VIX. So, the net asset value for VXX is constantly decaying (due to the wasting away of time value). <\/p>\n

Thus, the puts are always going to be slightly more expensive than the calls – because this discounts the fact that the VXX net asset value is decaying.<\/p>\n

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Mike’s note: <\/strong>Thanks again for your questions, everyone. Keep them coming to feedback@jeffclarktrader.com<\/a>.<\/p>\n

And don’t forget… Jeff’s first stock-trading event – where he’ll reveal his “S-Force” trading system to the world for the very first time – is set to go live at 8 p.m. on October 23. Sign up here to make sure you don’t miss it.<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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