VIX Strategy revealed: A Trading World Champion shows the #1 Indicator for high volatility!

Volatility, one of the biggest things in trading, if you understand it, trust me, a lot of people think they can trade breakouts, counter trades in every phase of the markets. Forget it. You have to use the real volatility strategy that you will be able to understand when you can do counter trades, breakout trades or anything else. I am the teacher of Christoph Eradica, Patrick Nell, Andrea Chimitan, Fabio Valentini. I have done and built a lot of good traders and I give them a lot of my knowledge and they love it because they use this knowledge for themselves and build her own strategies with it. And I give you today the opportunity to understand, very deep and comfortable, how you can use this strategy for yourself. Let me ask here if you'll like it.

Yes, volatility strategies, what are they actually about? The first thing you absolutely need to learn is how to read. How do I have information about where volatility is going to move? Is it going down or is it going up? For this we really like to use the so called VIX volatility index on the S&P 500. What does the volatility index show me? It shows me how high with a certain probability the range of fluctuation is for the 500 largest stocks in America, measured by the option strategies and structures that market participants are currently holding. So you can see whether there is a probability of increased volatility or not. You can also trade this instrument, but you have to be careful with the time decay. These are things that many people don't really take to heart. Nevertheless, you can read it from this 100%. Where are we right now? Are the institutional investors currently very active in the markets or are they more passive because they're not allowed to invest? And that's exactly what I want to explain to you in detail today and then derive from it what kinds of trades you can build from this. And that's really powerful. Here you can see the chart of the so called volatility index and you can already see it here. It sometimes has very high spikes. During the COVID pandemic it was sometimes over 100. That means it's a fear gauge. In other words, it simply means you can read from it how high the current level of fear is in the market. And if you take a closer look, you'll notice that when the volatility index is low, you're in a stable market phase most of the time. These are bull markets on the stock exchanges. But when volatility rises, yes, there is always some uncertainty among market participants behind it. And now we're going to take a technical look at the whole thing. And above all, I'll give you a little bonus. When is volatility most likely to be of short duration? And when does it last longer for you, easy to use so that you can simply take advantage of the range of fluctuations for yourself? And that's exactly what we always need. What you might also need to know is that this vix, which has all sorts of derivatives based on it, is very often used by institutional market participants for so called hedging. Just imagine you have a stock portfolio and this stock portfolio has risen significantly. Everything is great and you see that the VIX is starting to rise. What can you do then? Then you can go ahead and buy this VIX, either as an option, or you simply buy the corresponding futures contract that we have here, the VIX or something similar. But above all, be aware that it helps you because the profits you make with it will offset the losses in your stock portfolio. But there is a catch to it, and that's exactly what you see here. The market often rises explosively and then comes back down just as quickly. This means that, for example, if you bought the volatility index here, it could happen that the market is already back here and you end up looking surprised because you didn't sell here. And that's why there are two major differences that I always take into consideration. The first is where does this volatility come from? Is it news that is political? There's a wonderful saying about this and it goes, political markets have short legs. And I can tell you, yes, there's a lot of truth to that, because political markets are usually overreactions by the market and they tend to correct themselves quickly. This means the market likes to go up and down quickly in the vix. In the corresponding index futures, you often see the market go down and then come back up again relatively quickly. We've seen this very often recently, whenever Trump tweeted something or when other things were suddenly announced. And that's why you need to be very clear for yourself. When such news is purely political in nature, assume that the VIX will probably bounce back relatively quickly. Now comes the second point, and this is something you simply need to know. If the news that causes the volatility index to spike is truly macroeconomic in nature, based on underlying assets, and has very strong fundamental long term effects, for example, topics related to inflation or issues connected to economic growth, then the likelihood is higher that the volatility index will remain elevated for a longer period. Shall we just call it news driven by the economy. It is often the case that the market keeps volatility elevated for a longer period. And now there is a third situation, and this situation occurs very frequently. And in fact, I just recently held a great webinar on this topic. Unfortunately, there are often disturbances in the world and these are always, let's call them, acts of warmongering. And we all know who engages in such warmongering. It's terrible and horrific. But what does that mean for the stock markets? For the stock markets it usually means that the markets drop in the short term, just as they do with political markets. And then there's a saying which is quite cruel, but unfortunately it's the truth. In the stock markets, buy when the cannons thunder. That means when this, for example, when warmongering takes place in countries where resources and so on are simply the reason behind it with the intention of seizing them, it very often happens that the market quickly and promptly recovers extremely and then continues to rise. And not only does it recover, but then the curve often looks like this. Let's take an index future again as an example. For instance, there is an attack on Iran or something like that, and then the market goes up, up, up, up, up, and continues to rise. What is the perversion in this? Quite simply, in this phase, when fear sets in, many market participants sell in the short term. But actually, and this is the paradox and in fact also logical, many companies now have opportunities in this to disproportionately profit from these acts of war. That means they can make a lot of money there. What am I trying to say with this? In these market phases, as a company, you have the opportunity to position yourself in such a way that you can profit enormously from the reconstruction, from the scarcity of raw materials and so on. And that's why warmongering is something truly terrible. But on the stock markets it's often exactly like that. Buy when the cannons are thundering. A well known example, you will often notice that the markets drop when there is talk of such an emergency situation in the markets. And for example, when the idea of war is in the air and then all of a sudden the recovery comes. This could be seen very clearly, for example, in the S&P 500, and we assessed that absolutely correctly as well. The markets went down. There were several reasons for that. But this particular recovery happened mainly because we could see that Trump was starting to backtrack a bit and wasn't really going to take aggressive action in Iran. And we could already see that beforehand in the Volatility index here you could see that the volatility index was dropping significantly. Again, now there is additional information such as backwardations. This means that, for example, the front contracts suddenly become cheaper than the corresponding regular contracts. When you are in contango. That means the next contract gets more expensive and the next one gets even more expensive. Then everything is normal. You can also keep an eye on that. But yes, for now, let's just keep it simple and make things easy for ourselves. Let's take a look at what you can do. Take a look here. When the volatility index is below 20, does that mean institutional market participants are allowed to go risk on? That means they can make a lot of investments in stocks and so on and so forth. That applies to all of these market phases. Here you can assume that large amounts of liquidity are allowed to be invested in the markets. By markets, I especially mean stock markets and also risk on markets. But if the market goes above this level, like in these market phases here, you can already see that there is increased volatility and many institutional investors are not even allowed to invest in the corresponding markets. So for us, the absolutely most important figure in the volatility index is the 20. This means for us that when the market is below 20, you can assume that there is a steady inflow of money into the markets. If it is above, then it becomes rather difficult. And you can also see that market participants very quickly negate these movements. Again. But if you have a phase like this here or a phase like this here, and you are constantly above 20, then there is simply something going on that leads to large liquidity not being invested so easily at the moment. What does that mean for your trading? Look, in these market phases you can expect very large swings, quite simply. And in these market phases here it's more the case that you can do very relaxed balance trading. You can see it here. For example, here there was a market phase where there was absolute lethargy in the markets. There was simply nothing happening. But what often comes after such market phases? Take a look here. Then we had a market phase here that was also relatively lethargic. And then came corona here. It took a very long time for the market to normalize again. It jumped above it once more. And now we've been normalized for quite a while again. But we keep seeing these kinds of spikes. And that has to do with the war in Ukraine. It has to do with tariff policies, seas, and you can simply read off, okay, if we sustainably go above 20, above 25, then I can trade strong breakouts or I can also make strong counter trades if I place my trades at the right locations. I hope you were able to take something away from this. I hope this has given you a bit more awareness of how you can apply volatility strategies for yourself and especially if you are positioned long term in the stock markets. Now you have an idea and a sense of how you can use this gauge for yourself much more easily. I hope you enjoyed it. If so, feel free to leave me a like and I'm looking forward to providing you with more input to give you more awareness of how the markets really work and I'll see you again very soon. Best regards.