Wall Street's EXACT Formula To Measure FEAR In The Markets (Trade This NOW)

The total volume in the United States for The S&P 500 futures is made up of 90%.

Algorithms, really.

Algorithms buy and sell programs are directly tied to the pricing of the Learn

exactly how this Wall street trader uses the VIX to trade the S P welcome Dylan o' Neill to Chart Fanatics.

S P in a downtrend. When the VIX is in an uptrend, usually that will be the case. And if that is the case, we have an edge when it comes to adding a layer of technical analysis because what we're looking at is we're looking

for areas of in this episode, Dylan shows the exact use of the VIX and how volatility can showcase exactly how institutions are positioned.

Using the VIX prevents you from potentially getting faked out. A nice high probability setup looks like this where you have the S and P breaking below the lows. You also have VIX showing relative investors

and traders alike will refer to the VIX as the Fair Index as it gives you an exact measurement of the level of fear or stress in the market.

If you stripped the VIX away from me personally, I would have a hard time analyzing the S and P movements.

So.

So this is a prime example of a trade setup that I would take 10 out of 10 times if I'm awake.

I was just thinking about when I saw this and as we've gone through this, who knew that Wall street. The secret really is. Dylan dissects the exact use of the VIX and its impact onto the S and P futures. Welcome everyone back to Chart Fanatics, the go to channel for all the best strategy and concept breakdowns with the best traders in the world. Talking of which, today we have a very, very special guest. I've been waiting years to be able to record a Chart Fanatics and even a podcast with this particular guest. He is a phenomenal trader who works at a proprietary trading firm on Wall Street. When I say that it's a true prop firm, real capital with real infrastructure and real growth which we're going to be able to share with you today. This particular concept he's going to go over is something that will supplement and help you trade the S and P futures which I know loads of you out there are trading, so this is going to really elevate your game. Is the one and only Dylan o'. Neill.

Very fortunate to be here. Thank you for having me.

Yeah, I know we talked about this literally for years. People won't know, but it's finally the stars have aligned and we're finally making it happen today. I'm super, super excited. And yeah, where would you think the best place to begin is?

So what we're going to be talking about is the volatility index. Okay, first off, I'm going to explain very briefly what the volatility index is and then we'll get into how I personally use it. So we will talk about volatility.

This is really important now, I would say, especially given this year.

Right, for sure. So what is the volatility index? First off, I want to make sure that everyone here understands, understands the idea behind the volatility index. I'm just gonna do a brief introduction of it. Okay, so the volatility index is a measurement of the market's expected volatility over the next 30 days in the S and P. It is calculated on a real time basis and the pricing of the VIX is derived from the positioning from the SPX options market over the 30 day time frame. Oftentimes investors will refer to it as the fear index as it gives them a measurement of the level of fear or stress in the market at any given time.

Yeah, it's funny, it's interesting you mentioned that actually, especially when you mentioned about the fear index, because I could imagine the start of this year, volatility really picking up and we probably haven't seen that level of volatility for a while, probably since Trump was last in office. No doubt. This is just the start, I imagine, over the next few years. But why is it so important to. Especially now more than anything, anything. But why is it so important to sort of have a viewpoint on this if you're trading the spx?

For sure. So this is where we get into how I use it. Okay? So I'm going to break this down as simply as possible. So as the demand for puts increases on the spx, the price of VIX goes up. Okay? So SPX put demand goes up, equals value of VIX also up. Okay, on the flip side, the opposite. When the SPX put demand goes down, guess what happens, right? The value of the vix, the VIX price also goes down. Okay, so essentially what tends to happen is when the S and P, we're going to use es, which is the futures for the S and P, right? S, P, E S is S and P futures. When the S P goes down, right? S P goes down, what tends to happen is the demand for puts will increase. So usually when the S P goes down, the value of the VIX will go up. Okay, that's what tends to happen. It doesn't always happen. But again, that's what tends to happen. On the flip side, when ES moves to the upside, what tends to happen is that the VIX price will go down, okay? Another thing that's important to note is that when VIX goes down in value, pressure gets taken off of the S and P, okay? So VIX goes down equals pressure taken off es, okay? On the flip side, when VIX goes up in value, pressure is put onto the S, the es, okay? Pressure put on to es. I like to use the analogy of a hiker climbing up a mountain, okay? If I'm walking up a mountain, the less pressure, the less weight I have on myself gives me a better ability to continue climbing to the upside. On the flip side, if you put weights in a backpack that I'm carrying up the market, first off, I'm going to probably have a stroke. But in all reality is I'm going to struggle to go up that mountain in an easy manner, okay? So the same concept applies for the S and P in relationship to the vix, okay? When the VIX goes up in value, right? VIX goes up.

We.

We can assume that ES will struggle to sustain value, okay? On the flip side, VIX goes down, right? Equals ES has more of an ability, more of an ability to not only rally, but also sustain value. Plus this, okay? So by using the pricing of the vix, it gives us a good understanding of which side of the spectrum is in control. Bulls or bears.

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So that's the general, the total basics. We're going to get into more specifics on in terms of quantities and percentages and price action. But this is what you have to really understand because this is what everything stems from.

This is the foundation. When you say VIX price up or down, that's still representing the volatility, right?

Correct. Yep.

And then you said actually, which was news to me, is based on a 30 days.

Correct. So it's based on 30 days of SPX options positioning. Okay. So again, when the SPX puts, when the demand for spx puts increases, I.e. institutional players that expect there to be near term turbulence over the next 30 days. And what they're doing is they're hedging by buying SPX puts and that is push putting additional pressure on the S&P 500 as a whole. Okay. And an interesting fact, and this fact, it goes up each year, this stat goes up, you know, more and more because of what's happening in the market with algorithms and so on and so forth. But the total volume in the United States futures market for the S&P 500 futures, the total volume is made up of 90% algorithms. Really. So algorithms buy and sell programs are directly tied to the pricing of the vix. So when VIX goes up in value, what happens? S and P algorithms trigger sell programs. On the flip side, when the VIX price goes down in value, the opposite occurs where there are buy programs that trigger and push the market higher on the S and P. I got you.

So where do we go from here then? So we have the foundation for sure. And where do we pivot then to?

Next we're going to talk about price action and how to use these concepts in actual, you know, treating examples.

And so yeah, in terms of this though, just before we move on and I wipe this away, are there scenarios where you could have pressure put onto the ES but then still have the ES going down, for example, or vice versa? Correct. Yeah. And same with these, like these examples down here where it may struggle really when the VIX is going up, but are there still examples where the ES will still go up?

Correct. Yes, we're going to talk into that as well because there's, there's some tricks and tips on percentages that you can use in relation on both instruments that give you a nice edge. So now that you guys Understand the basics. Hopefully we're going to take that to the next level. Okay, so let's go over one of the basics again. Right? We have the demand for SPX puts going up, right? Demand for SPX puts increases, right? What does that do? That puts extra pressure on the S and P guy puts extra pressure right

on

es. Okay? So demand for SPX puts increases, and as a result, that puts extra pressure on es. Why is that? Because as the demand for SPX puts increases, the value of the VIX also goes up. Okay, so how can we use that to our advantage? Okay. When this occurs, usually what will happen is the S and P will be in a downtrend. Okay? S and P in a downtrend. When the VIX is in an uptrend, okay. Usually that will be the case. Okay. And if that is the case, we have an edge when it comes to adding a layer of technical analysis onto the S&P 500 futures. Okay? Because what we're looking at is we're looking for areas of potential resistance to play off of if and when the S and P has a relief bounce while the VIX is showing relative strength. Okay? And what this implies is that that resistance on the S and P has a higher likelihood of rejecting, has a higher likelihood of working.

Okay?

On the flip side, when you have a strong market in the S, P, right. When trend is going up, making a series of higher highs and higher lows, right? What tends to happen is the VIX price will go down, right? Making lower lows, lower highs. Okay? In this case, you want to mark out areas of potential support, whether that comes from, you know, basic horizontal support levels or, you know, Fibonacci, you know, simple moving averages, whatever the case may be. Right? Vwap. Anything that could potentially act as support has a higher likelihood of working when you have weak price action out of the vix. Okay? So this is the next step behind the foundation of what we went over.

I love that. No, I love that. Now it makes a lot more sense tying that together to be able to understand the correlation between the two to give you a high probable scenario to look out for.

Correct?

You know, so far it sounded complex to begin with, but then that's the nature of trying to explain the correlating factors and what to look out for. But now that very simple, very simple drawing and correlating factor definitely, definitely makes sense. And to your point though, just to really highlight for everyone at home, in terms of support resistance levels, as mentioned, it depends on what you class as support resistance for You. So whether it's Fibonacci or VWAP or a significant high or low, or just the classic horizontal support resistance area, the auction area, as Carmine mentioned in our episode.

Yeah, even. Even order flow. Right. If you're an order flow trader. Right. If your entry strategy stems from an order flow pattern, you can still use this information because again, if the VIX is weak. Right. The VIX is showing a series of lower lows. Lower highs. What you should be looking at is the confirmation out of the order flow to come up with buying activity. Any supportive flow flow of the S and P will work relative to a weak Vix.

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So I'm going to draw the S and P and we're going to look at say two different days. Okay, so this is a chart of the es, okay. And the market the previous day. So on the previous day the market made a low. Okay, let's just say this is the. The chart from yesterday. Okay. Going forward, we're now looking at that subsequent day on the S and P, okay? So if price is coming down towards the previous day low, okay? If you get a breakdown below that previous day's low, especially with aggression, okay, what should happen is that the VIX should be at or above its previous day's high. So what we're doing is we're using the same reference, right? The same time reference from the previous day, whatever the case may be, okay? It works best on the previous day. Okay. So again, I'm going to draw the vix, right? This is the price action on the vix, right? It makes a high. The previous day drops off and now the next day, when this is occurring, when the S and P is breaking down below previous day's lows, Right, we'll do PDL previous day low right here with momentum, right, with velocity in the tape, okay? What you want to see, or what bears want to see is that the VIX is at or above the previous day high, okay? So the VIX should ideally be at that previous day high when S and P is breaching below the previous day low. Okay? What that implies is that there is enough pressure on the S and P. That is what the VIX pricing is showing, that it is priced as it should be relative to the S and P. Okay. And what that implies is that there should be continuous movement below that previous day low on the S and P. Okay? On the flip side, if that same scenario happens where S and P is breaking below previous day low with momentum, yet you see that the VIX is lagging, right, in terms of being weaker than what it should be doing, right? And it's not quite at that previous day high, it's somewhere, you know, lower. It's making a lower high relative to previous day's high. That implies that the continuation below previous day low on S P futures is going to be short lived and it will likely result in a bear trap where you get a quick move to the downside followed by a reversal back to the upside. So that stems from the VIX pricing showing relative weakness because again, the higher the VIX goes up in value, the more pressure is put on the S and P, implying that you're going to see sustained downside movement. Okay, so the moment it shows weakness relative to S and P futures, that implies that the downside pressure below the reference point is going to be short lived.

That's where people get faked out, right?

Correct. So, so using the VIX prevents you from potentially getting faked out. Now, does it work? 100% of the time? Of course not. If it did, I'd be sipping a pina colada with Jeff Bezos and Bora Bora. However, from a pure probability standpoint, if the VIX is showing relative weakness, okay, you do not want to be initiating shorts below that previous day low on the S and P. That is a lower probability entry because again, it implies that the downside continuation below previous day's low is going to be short lived and usually that results in a quick squeeze back to the upside. So taking this one step further, you could use the NASDAQ as well. Now, it's very, very important to note that VIX pricing is not correlated to NASDAQ options. It's only correlated to the S P options. Okay? So VIX pricing is derived from SPX options, the positioning in SPX options over a 30 day period. However, because the NASDAQ and the S P tend to move in tandem, right, they have a lot of the same equity holdings in both indices. You can use an extra layer on the NASDAQ and to add more confluence to this particular setup. Okay, so we're going to go over that. So on the Nasdaq, right. NASDAQ futures, we're going to draw a similar chart. Right? Previous day low, we're down here. Okay. A nice high probability setup looks like this where you have the S and P breaking below the lows, okay. With momentum, whereas NASDAQ is making a higher low.

Okay.

On top of that you also have VIX showing relative weakness. So not only do you have relative weakness out of the vix, which implies that the downside pressure on the S and P is going to be short lived under the previous day low, but you also have relative strength coming from the NASDAQ where these lows, these prior day lows were never broken. So this has a very, very high probability to end up resulting in a squeeze back up to the upside. So what that would look like from an entry point of view is you would want to wait for the S P to recapture back above previous day's lows. That is your entry signal. Right? And then what I like to do ideally is to long the NASDAQ as it was showing relative strength. Right. When you're getting into a long trade, you want to ideally do it on the instrument that is showing relative strength rather than doing it on the instrument that is showing weakness. Okay, so again, what is this comprise of? It comprises of S and P breaching the previous day low. Okay? VIX showing relative weakness because again, it should be at that previous day high. But because it's making a lower high, that implies that the downside continuation is going to be short lived. On top of that, NASDAQ is also showing relative strength making a higher low relative to S and P's lower low. And this sets up for a triple confirmation long setup.

Incredible. Incredible. Because I've seen and heard about sort of SMT divergence is what they label it online in terms of ES&NQ and seeing this divergence and relative strength or weakness. But then to add an extra layer with the VIX which is highly correlated over to the ES as you say triple confirmation. And how often would you say this is this happens or you see this sort of stuff?

It really depends on the market. Right. The higher the vix. Right. The higher the volatility in the market, the more likely this will happen.

When you say higher volatility, that doesn't just necessarily mean that you're going to see VIX price higher?

No, it does.

What I mean, sorry, is that will you see the movements and the volatility of the VIX increase as well? Does that make sense?

Correct. Yeah. So the VIX pricing, there's a, there's. It's called the rule of 16 where you take the price of the Vix. Right. Let's just say VIX futures are trading, you know, let's make it easy. And VIX trading. VIX futures are trading $32 or it's not even dollars. So let's just say you see that the VIX is trading at a level of 32. This rule of 16 implies that if you take that price of the vix divided by 16 you get 2% daily moves in the S and P over the next 30 days. That is what it's implying.

Why 16?

You know, I do not, I really don't. It's. It's funny because I've been using the VIX for years and I genuinely do not know why it's 16.

But it works.

It works. Yes.

Yeah. Yeah, but that's so interesting then. So then that will then dictate. So let's say if that number was say 64, so that would then be a 4. We could expect a 4% movement within the ES.

Correct.

And then correlated over to the NQ as well.

Correct.

Incredible.

So it does. It is the case that the higher

the VIX goes, the price increases or

the number, the volatility of the market itself has a higher probability of having larger swings.

There are people who actually trade the VIX itself.

Yeah, me.

No, you trade the actual VIX as well.

It's one of my favorite instruments to trade.

Wow. Yeah. So in this case, we're talking about, in the end, you're taking this trade. Right.

Correct. From this example because it's showing relative strength. Relative.

So is there any scenario where you take the same information we've gone over so far, but you're actually trading the VIX instead, or is that a separate playbook? Separate.

Usually it's separate, but there's also another trade set up using these three, the three Amigos, per se, where the VIX shows relative strength and it implies that the S and P and the NASDAQ will continue to the downside. Okay, so we're going to go over that.

Do you ever find yourself when, in these scenarios, trying to. You got triple confirmation, but then trying to do triple entry, if that makes sense, where you actually executing on all three?

No, because that's too much concentrated risk. You're basically taking the same trade three times. So, I mean, it's overwhelming, too. But if I did do that, which I don't. If I did do that, I would take the. The amount of risk that I'm willing to trade and divide it by three. So if I'm, you know, if I'm risking a thousand dollars, I would do. I would outsource or facilitate $333 to each of them.

I got you. Yeah. Now, the reason I asked that is because I'm sure that's probably a question people think, why wouldn't you just. This is like a hack in the Matrix and you just execute all of it. You win every single one. You're a millionaire. Right?

Yeah.

But to go back to your point with this example you've laid out, you. Then, in this example here, you've picked the one that has the highest probability based on it having the relative strength. Right. So then rather than trying to divide your risk and having too much risk out there, or divide the risk that you, you know, initially would use on one position, you're just going for the. Essentially the A plus out of the free options. Correct. Got you. Yeah. Amazing. Amazing. This is a great masterclass for me because I've obviously heard people talk about the VIX a lot.

Yeah.

And I see people who trade it, but I've never had a great understanding. But today. There we go.

Excellent. Glad to hear that.

Where do we go from here?

So the opposite of what we just went over is a confirmation from. From the VIX that implies that you will see continuation out of S and P and the NASDAQ to The downside. Okay, so if you were looking to get short the market via S and P futures, NASDAQ futures puts, right, SPX puts QQQ puts, whatever floats your boat, this is what you ideally want to see. Okay, so if the S and P is breaching below previous day's lows, NASDAQ is also breaching below previous day's lows with momentum, and the VIX is at or above previous day's highs with momentum. That sets up for the largest probability that you will see sustained downside pressure out of S and P and the nasdaq. Okay, so if you are going to initiate shorts below, at or below previous day low on one of these indices, you ideally need to see confirmation out of the VIX as it's at or above that previous day high. Because as long as it's not, as long as it's showing relative strength below that reference area, that hurts the probability of a sustained downside motion out of the industry.

So in this case, to follow up with that, once we break above, we're then expecting a much more volatile move down, Right. A lot. A free fall. Almost.

Correct.

Before it gets to that point, even if we're going lower, it has the risk of being, you know, sort of stalling, reversing. But that's the confirmation, correct?

Yep. And sometimes you'll really, really see a very apparent weakness out of the VIX where you could kind of front run the activity because sometimes, again, very, very, you know, I wouldn't say rare, but sometimes what you'll see is this out of the Vix where S& P and the NASDAQ are not at previous day's lows yet, but the VIX is already above previous day high interest. So in, in theory, you can argue that you're actually getting a better short entry because you're not necessarily waiting for that previous day low break.

Yes.

You're already getting information that the demand for putting puts is increasing where investors or institutions are expecting near term turbulence. Okay, so if folks are loading up on SPX puts, right? SPX puts are, you know, SPX puts, the demand increases, demand increases. Right. At a very, very high caliber. This is the movement that you'll see where VIX will breach or break above previous day high well before the S, P and the NASDAQ do their parts. Okay. So I always say the best, most continuous moves occur when S and P, NASDAQ and VIX move in tandem. So each one has their role. It's very, very important to understand these concepts to be one step Ahead of the crowd.

I'm sure you have other playbooks outside of this of course, but let's say for example this is what you're focused on. Only when they are out of sync, what's best to happen then sit out, be patient and wait for them to get back in sync.

Correct? Yeah, yeah.

I just wanted to double check. The other thing is like what would your mindset be? Let's say this has taken place and we haven't seen that, that follow through yet. Is there any part of you that think oh okay something's off here or is it more so because of the principles of this? You know it actually does the opposite where as long as you have that understanding, you then have more confidence in this going down the ladder.

What you just said is, is the case.

Got you, got you. I wanted to double check because I'm sure there'll be people out there who hear this like this is gone and this hasn't moved yet and they might think ah, this isn't going to move. This might then pull back and therefore this goes long instead when in reality as you say, what's this? I think that's what that's representing. Is this bit right?

Correct.

So because this has taken place, the VIX has increased, it means that the puts of demand is increased which means this is going to then have. It's almost like a knock on effect, right? Like a domino effect.

Exactly.

Okay, got you.

And we're going to get into pros and cons but one of the pros out of the VIX is the fact that it's a leading indicator.

Got you.

So this does not have to move first before VIX put prices move. Okay, sometimes, not all, but sometimes the VIX will move first to give you a nice edge. Almost like a telltale sign of what's to come.

In this out of interest from your opinion, would you say this is more for experienced traders or do you believe that? And when I say experienced, I mean, you know, people who've been trading for multiple years probably already have edge. Or would you say that people coming into the markets maybe a couple years in can actually utilize this? Because I think in the beginning when we were breaking down obviously the correlating factors, etc, it maybe came across a little bit complex but straight away afterwards once you understand the correlation, it feels quite simplistic and something that you could follow along to for sure.

Yeah, no, this is definitely beginner friendly because the more and more you see these patterns playing out, the more and more your brain is able to Recognize it. So in my opinion, and I could be biased because I've been using this for a while, but there's not too many conditions that need to be taken place for this particular setup to trigger. So it's not like we're doing some complex calculation or waiting for, you know, eight different things to occur in theory, you really just need that one thing to occur to then. Exactly.

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So in previous years, right, say in what, 2023.

Yeah, yeah.

Right. You had a few one off events right from the yen carry trade. The, the, the volatility index had a spike. You had a few one off times where the VIX spiked up in a large motion. However, for the vast majority of the year, the VIX was in a total downtrend per se. Okay. What that implies is that the dips on S P have a higher likelihood of getting bought. So that's a clear understanding. Right. Using the VIX weakness throughout the year gives you an edge in assuming that dips are more likely to get bought. Bulls have an easier ability to defend pullbacks. So essentially you would then focus on trying to figure out areas to get long in the S and P. So

you could flip, essentially almost flip, the examples we were going over. Rather than price looking to break out long on the vix, you would just do the opposite side and then correlate that across to S and P and NQ accordingly.

Exactly.

Perfect. So should we go over the pros and cons and then we'll break out some charts?

Sure. Before we go over charts, I'm going to talk about the 1% rule. Okay. Because again, as I said, when demand for SPX puts increases. Right. We're just doing this again. Demand for SPX puts increases. Okay. What should happen is that the, the, the VIX goes up in price and the ES goes down. Okay. On the flip side, the opposite, right. When the demand for SPX puts decreases, VIX should go down in price and S and P should rise or have a higher probability of rising. Okay. However, that's not always the case. Okay. And a very helpful trick is, is to use the 1% rule. Okay, let's talk about it. So very important to note that this does not happen often. However, when it does happen, it's very, very important to understand what to look out for. Okay, so what does this imply? What is, what do you look for? Right. So when the S and P. Right. Is up more than 1% on the day, and we're looking at net change, so the net change, net percent change relative to yesterday's close. Okay. So on the subsequent day, if the S and P futures is up more than 1%, okay. Or more. Okay. And the Vix is up 1% or more. Okay. Which again, this should not be the case because if this, if the S and P is up, the VIX should be weak, should be minimum. It should be.

So this is what we were talking about, the question I asked near the beginning, right?

Exactly. So if the S and p is up 1% or more, what should happen to the VIX is it should at least be flat or down on the day. Okay. However, again, sometimes you'll get this scenario where if both the S and P and the Vix are up 1% on the day or more, that implies that there's too much pressure on the S and P and that the ability for the S and P to sustain at those highs is very, very unlikely. And then it's going to roll over. Okay. So ideally, if that occurs, your goal as the trader is to figure out an area of resistance to, on the S and P to pair this information with, which sets up for a high likelihood of that resistance working.

Any chance with the high, all time high that we saw sort of price stall at before we sold off, is this what occurred?

Correct. So that's one of the cons of the vix. And, and we'll get. Do you want me to get into that now or save it? Yeah. Okay, so one of the cons of the VIX is usually when the S and P is at a macro high, right. Call all time highs. Right. So if ES is at all time highs, right. Or you know, just a macro high from, let's just say the highest it's been in the last year, two years, right. What ends up happening is the VIX will hit a natural floor. Okay. So what that means, okay, is that the VIX goes so low that the, the cost of hedging is very, very appealing. Because with the VIX so low, that influences the pricing of SPX puts. SPX puts will be at a lower cost. So if you own a hedge fund, right. If you manage a hedge fund and you have a ton of longs, right, you'll see that SPX puts only cost, you know, a small amount. So you're gonna be more likely to put on some hedges with those cheap

getting at a discount.

Exactly. So when the S and P is at that macro high, the VIX will hit a natural floor where it could even go to the upside, right. Kind of trickle to the upside as the demand for puts increases. As hedge manager fund managers are, you know, they look at those, those, those put prices, you know, in a very appealing manner. So I like to look at it as like insurance, right? You're more likely to buy an insurance policy if it's cheap. Okay. So again, sometimes this will happen. Okay, so Again, I personally never use the VIX by itself. I have to coincide the context of the VIX with the S and P. So the good thing with this con is the fact that S and P is usually in uncharted territory, so there's not much resistance.

Yeah.

Okay. Because when this is the case with VIX finally getting to the natural floor. Right. Where it does not go down anymore. Right. And it kind of just either goes sideways or trickles to the upside. Right. I'm going to see some false context that make me believe that S and P, the pressure up getting put onto S and P is increasing.

Right.

As the VIX goes up in value. However, again, because S and P is in uncharted territory and it's clearly resilient as it's at all time highs or multiple, you know, multi year highs. That's kind of where I take a step back and don't do anything. Yeah, it's, it's a, it's a low probability trade to take off of this scenario. Okay. But again, if you're not used to looking at the vix, if you're new to the VIX and that is a false flag.

Yeah.

Right. It's, it's showing you what usually acts as more pressure on the S and P, but you can't really necessarily act upon it.

It's position.

Correct.

Now that makes sense. Well, let's go over the pros and cons and then we'll go straight into the charts. Yeah.

Beautiful. And before them one more time. Of course, this also works on the

flip side of vice. Vice versa. So if they're both down and negative, it's down.

Right. If S and p is down 1% or more. Right. Down 2%, down 3% on the day and Vix is also down 1% or more on the day, that implies that S and P is probably going to bounce sooner than later. Okay. And as a trader, your, your job or your goal is to find an area of support to use that information with, implying that the support area is going to have a higher probability of working or with this information. Yeah.

And again it goes back to the fact that the correlation to the S and P with the vix, the VIX is the one that's in control. Right. So because the Vix is down 1%, we expect that bounce. It wouldn't be the other way around where we think because the ES is down, the VIX should change, Correct? Yeah, precisely. Perfect. And we'll do the, I'll do the cons on this side. So I'll just write one of the cons we just mentioned, which was potential false signal, if you will, in that exact scenario. So don't take it as like false signal all the time. In that exact scenario that we just went over could potentially give a false signal. But that exact scenario doesn't really happen all that too often. Right. It's at those extreme highs or lows where whether it's all time high, you can't really do all time low, I hope, but anything's possible with a Trump market. I'm sure.

I would argue it's mainly at when S P is at all time highs, not the opposite of at low.

Got you. Okay. So we can say that all time highs or when we say all time highs, we also mean, you know, multi year highs, significant highs. But that's great, great to highlight that as well. The other con, I would say, and this is just from my perspective, and you can confirm for me, would be being able to track across assets, across markets. Some people might struggle with that. And just to also say, as always, cons doesn't mean it's a bad thing. It's just something to be aware of when trying to utilize this. Something that could be a hurdle, something that you might have to overcome. So like tracking across, you know, the VIX to the ES to NQ for sure. Right. So we'll call that multi.

And for that, a tip at least that I use is I'll have all three charts next to one another.

Yes.

So I see them moving in tandem. Okay. And another thing is the fact that each chart should be in the same time frame.

Yes.

Okay. Because if you're looking at the vix on a one minute chart and the S&P is on a one hour and the NASDAQ is on a 30 minute, you're going to see a lot of. It's going to be very, very overwhelming to track. Okay. You want to see the same reference points in sight. Okay. So by using the same time frame, it's going to allow you to understand whether or not these instruments are moving in tandem or inversely of one another.

Would you say there's an element of discretion when it comes to. It's mechanical in my eyes in terms of if, if this happens with the vix, then this will happen with NQ and es. Right. However, the discretion in my understanding would be that you, like we talked about, if you're going to front run a trade, you're going to have to essentially use your discretion to, and your confidence to be able to do that versus being Able to say this confirmation. Exactly. Right here. Right.

Correct. So again, I mean, you know, you're technically getting it from the price action of the vix, but yes, as you get more comfortable using it, you can use your discretion much more confidently.

The discretion or discretion dis. Yeah, I spell it wrong on the other. On the last episode that I recorded, but no one needs to, as long

as it looks right.

Yeah, that's probably spelled wrong as well. But hey, I'm a podcast host. I don't do this. That's fine. Cool. But what about the pros? The pros side of things? I would say, you know, high probable scenario.

Yeah, so we'll do that. High probable scenario. Okay. The one we talked about with the S P breaching lows, Right. Previous day lows, NASDAQ making a higher low relative to previous day low, and VIX making a lower high relative to previous day high. That usually sets in, sets up in a squeeze on the S and P and the Nasdaq as it implies. Right. The VIX is a telltale sign that institutions are not positioned for further downside continuation. Another thing is the fact that it enhances the technicals that you're using.

Yes.

Okay, so.

And again, really, it's. Regardless of the strategy you're using this info, like you just said, the information that you get from this is beneficial.

Correct.

Regardless of whether you trade, order, flow, exact technicals, or even fundamentals, it's going to allow you to have a lot more confidence and understanding. Because even if you don't execute on a trade, I imagine, you know, there's sometimes, if you don't understand or look at the VIX whatsoever, which I know there's probably a lot of traders who don't, and they probably should, and hopefully they will now. And this is the, the purpose of this channel is there could be movements that catch them off guard, that in reality, if they just very simply looked over at the vix, understand the correlation, they don't need to be caught off guard. Even if they didn't take the trick, at least there won't be a case where they have to then sit out for days at a time wondering what happened there. I'm not sure what happened. I'm going to have to sell versus even if they missed the trade or didn't execute on the trade, by having the understanding, they're able to move on.

Exactly. So just to reiterate this, right. A weak downtrending VIX implies that bulls are in control. Right. Because a weak VIX takes pressure off of the S and P, allowing for the bulls to easily defend pullbacks.

Yes.

Okay. So having a weak VIX implies that areas of support are going to work better. Okay. On the flip side, having a VIX that is strong puts additional pressure on es, implying that areas of resistance will have a higher probability of working. Okay. Also to that point, to extend on that. Right. Same deal with having higher VIX pricing puts additional pressure on the S and P, which implies that any rallies that occur on the S and P are more likely to fail. Where the sellers will keep a lid on rallies. One more. I don't know if it's too similar to that, but it gives you an idea of which side of participants has control.

Yeah, that's different. Yeah, I would say.

So the last one or one of the other ones is the fact that it gives you an idea of which side of participants is in control. Okay. Which side has control?

I would say as well, just off the back of the con is that multi asset is actually a pro too, because as we talked about, there wasn't just, you know, a trade for nq, there was a trade for es, there was a trade for a different style of trade depending on what the VIX was doing, etc, but there was a trade, a way of trading each one.

Correct.

Right. Which means then that let's say if there wasn't one opportunity playing out, there could be another. Which means that there can be a constant flow of opportunities that could take place. Right. So it's both in terms of multi asset con being able to track each one. But as you said, you gave some really good tips for that. But equally it's a pro because, you know, you get to be able to have an opportunity on multiple assets. Because I know that there are pros of just trading one asset for sure. Equally, cons are because once there's no opportunity on the asset, if you're only trading one, the best you can do is sit on your hands. And that can be very difficult as a trader. Plus you don't know how long you're sitting on your hands either versus when you have this, this system here where potentially maybe there's not one opportunity playing out, but there's another. You have three different markets or two markets. And what would you class the VIX as? Is it a market of its own or is it just a different type of asset that you're trading?

Yeah, I would say it's similar to its own market because of the pricing metrics.

Yeah, but yeah, you got multiple options there. Yeah, I love that. But is it Time to pull out the charts and then we see some examples. Yeah, let's take a break for a minute there, guys, because I want to tell you about our incredible sponsor, TradeZella. TradeZella is the the number one trading tool in the entire trading industry. Tradezella allows you to become a more profitable trader, allows you to make immense progress as a trader, no matter if you're a beginner or an advanced level trader, because it makes journaling easy. It makes journaling something that is fun and enjoyable and something that is interactive. So no matter if you're a crypto trader, no matter if you're a futures trader, no matter if you're a forex trader, no matter if you're a stock trader, all you have to do is select your broker, your platform of choice, and connect it to Tradezella and it will automatically sync your trades and pull all of that data onto the dashboard. Making journaling and finding your edge and adapting your edge so easy. In collaboration with Tradezella and Chart Fanatics specifically, we are actually getting the playbooks from the episodes that we're filming with these included Incredible Verified traders and adding them as playbooks onto Tradezella. So you can actually go on there and see the rule sets already predefined. So make sure you check that out as well. Now you can actually get 10 off your monthly subscription using CF10 on Tradezilla right now. But more importantly, I would say CF20 for 20 off your yearly subscription with TradeZella. The links for Tradezilla seller are in the description below, so make sure you go check them out. UCF 20 get 20 off your yearly subscription. Become a better trader today. Now let's get back to the episode. So we're going to actually go over some live chart examples of when this is, you know, the concept of the VIX with the ES and the correlation and everything that we've gone over. We're going to see some actual examples of how you can utilize this on the charts.

Awesome. So I'll start, I'll get right into it. So this is a long trade that I took on the vix itself on February 20th of this year. Okay, so this trade realized a an R multiple of six to one. So, you know, risking a thousand, you would have made 6,000, so on and so forth. And just for a brief explanation before we get into the charts itself, some of the confirmations included a VIX double bottom right at the contract lows, which lined up with S and P failing a breakout at all time highs. Okay. Plus there Was a recent pattern involved in terms of the price action on Fridays as well as an important time factor as well. Okay. So by combining VIX support and S and P resistance, it is a massive edge worth putting risk on.

Okay, so that correlation.

Correct. Okay, so this is just a discord post where I alerted the particular trade, right? Spot VIX futures, which is the March contract at the time just bounced at contract lows. Contrary to my general market reading, I took some long at 16.89 ish risk reward was is too good not to try a long there. Okay, so here we are. Okay, I'm going to go to the March VIX futures because at the time that was the case. Okay, that was the spot VIX at the time. Okay. And we are going to highlight right before I took the trade so that that trade occurred on February, February 20th of this year. Okay. So at the time the VIX futures, the March contract had an A contract low at 16.8. So if I pan over, you could see since inception on the March contract it had made a low on December 4, 2024 at 16.8 and we had not revisited that point on the chart until February 20th. Okay. So that was one part of the trade itself. Okay. So again if the VIX is in a downtrend, right. What does that do? That takes pressure off of the S P, allowing the S P to rally. Okay. Hence why it was at all time highs to begin with. Once the VIX is at an area of support where it has the ability to bounce, right. If it bounces at that support, what is it going to do? It's going to increase in value which puts pressure on the S and P, which causes the S and P to go lower and the VIX will continue to the upside. So we're using that inverse correlated strategy to our advantage to monetize that. Okay, so very important to note that that was a Thursday. Okay. The reason I say that is because of a recent pattern that had that was presenting itself on the S and P itself. So we're going to go to spx, okay, and show you guys that at the time the S and P was failing to break out of a previous all time high. Okay. So I'm going to go ahead and sharpen that 6128 level. Okay? That was the all time high that was made in January, 1-20-24 of 2025. Right. If I pan out, you could see that was the clear all time high. Okay. So what I saw in the S and P was the fact that the day before right. This was February 19th. So the day before I took that VIX trade, the S and P failed to break above the VIX or the S. P failed to break above all time highs. Okay. So if you kind of think outside of the box, if we see that sellers are factored into the market from the S and P failing to break above all time highs. Right. We can then assume that the S and P is going to pull back and inverse related to that, the VIX is going to go up in value. Okay, so that was that. Those are two different pieces of confirmations. VIX at contract lows. Okay. And S and P failure to break out of all time highs. Okay. Another thing again, this is that recent pattern that I was referring to was at the time. Yeah. ES futures had a current pattern that I was looking to capitalize on. Okay. And what this was was the fact that it was selling off on four out of the last five Fridays.

Okay, got you.

Okay, so I'm going to highlight those particular Fridays. Okay, so let's see. So we'll start from where was it? Right here. So I'm going to circle those particular Fridays. Okay, here's one Friday that was the first Friday it sold off. This is a four hour chart. Second Friday. Right. Third Friday, Fourth Friday. Right. So clearly again there was a pattern that the S and P was selling off on each Friday. Okay. So again, the fact that VIX was coming into contract lows on a Thursday, S and P failed at a all time high on that Wednesday. Right. That tells me that A sellers are active. B, VIX is at an area where it can potentially bounce.

Yeah.

Right. And see, we're coming into yet again another Friday where the last four out of five Fridays have sold off.

Yeah.

Okay. And if, if the S and P were to sell off again, what will the VIX do? It'll go up.

Yeah.

Okay, so do you need all this context? No. Okay. In terms of the pattern and stuff like that. But ideally what you're trying to do is match up a S and P support to a VIX resistance and vice versa. Okay.

For that particular plus it's added context. When you can add more context, it only benefits your confidence and your, your trade, your thesis.

Exactly. Okay, so we'll pan back over to the vix. So coming into that particular day, we'll go to a 30 minute chart. Right. Basically I waited for the VIX to come down and test that contract low, make sure that it was able to bounce. And I got in once it showed that it was able to bounce. Okay. So I got in at an average cost of 16.89. Well, okay. And again, the risk reward on this particular trade was very, very appealing on VIX as opposed to doing it on the S and P itself. Because again, Vix, I was able to risk only 15 cents. However you want to quote that. Technically it's not in dollars, but I was only, I was only, you know, I was. I was able to only risk 15 cents relative to a potential reward of, you know, $1 plus. Right. Which netted that six to one risk reward. Okay, so let's see and then we'll go back to this and just to. Just the next slide is the outcome. So I put here one of the order fills on a. A take profit. Okay. So my take profit areas are derived from technical tools that can act as potential support and resistance. So if I'm in a long trade, I map out areas of potential resistance and take profit ahead of those spots. Okay. So you could see down here previous high. It was a previous swing high. So I front run previous swing high. Updated visual on vix. You could see. I don't know if you guys could see that, but the Average price was 18.05, whereas that previous swing high was 18.10.

Got you. Yeah. So try and do it beforehand.

Correct.

Okay.

Because if I'm in a long of the VIX and it's coming into an area that it can potentially fail at, I want to make sure that I am taking profit ahead of that possibility.

Yes.

Okay. So the outcome of this, you know, looking at it in hindsight, we had a very, very nice move to the upside that I was able to capitalize on where I just pre mapped out my areas of take profit. And as it worked in my favor, I was able to scale out level to level. Okay, and as a result, on the S and P. Right. What happened to the S and P? Oh, God. Back on S P. Right. What happened was this, where the S P sold off on that Friday yet again to go another Friday to the downside similar to that pattern. And the result of that, or you know, you could look at it vice versa, the fact that VIX was able to bounce at support, go higher, that put additional pressure on the S P, which caused the S P to move in a downtrending manner. So you could see if we pan out, that marked a very, very important inflection point that ultimately caused price to go lower and lower. And as a result, the VIX went higher and higher from that entry point. Okay, so the VIX making higher Highs and higher lows for the next few weeks caused the S and P to lower lows.

Lower highs.

Exactly. Okay, so that's one scenario that I'm looking for is to coincide an area of technical importance on the S and P and find the other opposite technical area on the other one, the vix. So if VIX is at support S P is at resistance or showing context that there's sellers factored into the market. If you're looking at order flow. Right. That implies that it's a high probability that the VIX is going to bounce and the S P is going to sell off. On the flip side, if the VIX is coming into an area of resistance and the S and P is coming into an area of support, that also implies that that is a key inflection point where both instruments are going to mean revert the other way.

How fractal would you say this concept is in terms of could someone who's scalping still be using correlator? For sure, it's just making sure to obviously adjust your time horizon and so on.

Yeah, definitely.

And would you say that anyone who's trading S and P should really have a focus or eyes on the VIX as well?

I recommend it. You know, some can argue that you don't necessarily need it and I agree with that. But if you stripped the VIX away from me personally, I would have a hard time analyzing the S P movements and figuring out where the S and P is going to move next if I did not have the vix.

Okay, so have you found that there's a lot of traders who come to you not knowing about the VIX or using the VIX previously but see a dramatic difference by just having that additional information?

100%. We're, there's a, there's an example of that I show a member's trade and how that member was self sufficient and how he said, you know, I appreciate you showing us these scenarios. I was able to capitalize on it. So that is the first trade that I took again, that was back in February, you know, February 20th of this year.

Yeah.

Okay.

What's interesting as well is like you know, let's say if you didn't break down all of this first like what we went through and you just showed us the trade you'd then be looking at, especially let's say if we talked from the S and P side, you caught the very top of the market. How did you manage to do that? Like you a mystical wizard. Yeah. When in reality, you know, the Context of it all makes complete sense. And it just showcases really how you don't need insider information, you don't need to try and predict these things. There is relevant information that you can use at your fingertips.

Correct.

To be able to, regardless of whether you're trying to pinpoint a top or not or how long you hold for anything like that. But there are instruments that you can use to really benefit. And it's so look how many. Look how much stuff is on your chart. Look how much stuff is on your chart to make that happen as well.

100%.

It was all context like. So for example, in this case, in terms of your entry on the vix, would the stop loss just be going below that level?

Correct. Yeah, precisely.

Yeah.

Because you know, in theory, if it were to breach below that all time low, that contract low it not only should it continue, but my thesis is wrong at that point. Okay. Because I am betting that that area of support is going to work, making the VIX go up, putting pressure on the S and P and the cycle begins. Yeah.

And in this case, as you said, you went for the VIX because the S and P risk reward wise wasn't as favorable.

Correct.

Gotcha.

Yeah, exactly. Perfect. So we're going to get into the next example. Okay. So this next example was just last week.

Oh, amazing.

Okay. And to preface, full transparency, I did not catch this particular trade.

Okay.

Because it initiated at three in the morning. So I was, I was asleep, unfortunately.

You're saying you sleep. That's crazy.

Right? So this is a prime example of a trade setup that I would take 10 out of 10 times if I'm awake, of course. And you know, I see it playing.

You trade specific hours personally or is it just a case where.

No, yeah, I trade whenever a my edge presents itself.

Interesting. So in this case, for example, for any reason, if you were awake, a free app, you would have taken 100% got you, without a doubt.

Okay. So this is an example that the VIX was coming into an area of support. S&P, Nasdaq and the Dow Jones were at resistance. Now the Dow Jones is. It doesn't move in tandem as well as the S and P and the NASDAQ will. Because a lot of the heavy holdings in the Dow Jones are not in the S and P and the nasdaq.

Yeah.

So it kind of has a mind of its own. However, it doesn't hurt to add that extra layer, of course, of confirmation. Okay, so this was posted on May 28th at 9:17am I said the VIX trend line stemming from December of 2024. Right. Each time price has tested and bounced, it has coincided with a top in ES. This line remains key to watch. Vix is about 3 1/2% away from testing it at the time of me typing this. So it's basically giving a heads up saying, hey, this is a very important line to watch. Right. Because if it's been working for six months in terms of each time it bounce at that line.

Yeah.

It has coincided with a top in S and P. You better be looking at it if you're. You're also going to be looking at and assessing S P action.

Yeah.

Okay. It gives you an extra layer of context and confirmation. Okay. So this is the next one. You could see this was the following day. Right. Almost 24 hours later I said it continues to work. Right. And we could see that it did in fact working. But I wanted to throw this in there because I'm going to show you that the S P was showing total strength and it really looked like it was going to continue to the upside.

Interesting.

But if you had this VIX line, it probably would have deterred you from getting involved in the S and P at those highs and getting stopped out. So it would have. Exactly. It would have.

Even in this case, it's really a good example of let's say you didn't manage a trade, but at least it could help you avoid a loss or like, you know, feeling like you're missing the train, if you will. And yeah, even if you don't short the S and P, even if you don't long the vix, it allows you to have the context, the understanding so that the next day, coming into this day, for example, yeah. You know what's going on and you know, hopefully your next move off the back of that. What to look out for.

Exactly. So again, we're going to go to. We're going to use the current VIX because that is what is.

Is only last week. Right? Yeah.

So this is June vix. Right. I'll go to a daily chart. We're going to draw that trend line. Okay. And do a normal trend line from contract lows stemming from the 2024. And we're going to draw it to the Vix. Right. So clearly, again, right. We're seeing multiple areas of support and each time this bounce, each time the VIX bounce at this particular trend line, it coincided with an S and P top where the S P ended up selling off. Okay. We would on a six hour to give you guys A better visual. This is the example that we're referring to right here. Okay. So I again, I posted this a day before it triggered.

Yeah.

Okay. Not necessarily a full day, but you know, call it 15, 16 hours before it happened. Okay. So I'm going to show you what the S and P look like in relation to that occurring. Okay. So Again, this was May 28th. Okay. So what I'm going to do is I'm going to draw this line right here. Okay. So this was the previous swing high that occurred on May 19th, about a week and a half before May 28th.

Yeah.

Okay. And if we pan out, you could see that this was actually a multi month high. It wasn't like it was a weekly high, a monthly high, a daily high. This was the highest S P had been in, in a long time. Okay. So it was a very, very important level and we can assume that there was a lot of eyes on it. Okay. So we're going to go to call it a 30 minute. All right. You could see the price action into that line was very, very strong, very nice, bullish momentum. This occurred after the market closed on Wednesday, May 28th. Okay. Very nice action. There was actually news. It was, the news was that the US International Court deemed Trump's reciprocal tariffs as unlawful.

Oh, really?

Okay. So when that news came out, you had some investors probably thinking, oh great, the tariffs are off. You know, the, they're no. No longer present. Right. So growth is going to increase. And you know, I remember that, I

remember people being in this trade and they were holding longs even at the highs and round tripped.

Yeah, yeah, I believe it. I believe.

And they, they probably, from my understanding, don't understand why, Because a lot of people, it's interesting because I'm sure you see it a lot as well where you know, there's cycles where one group of people say the market's amazing, but there's another at the same exact time trading the exact same market who say this is terrible. Yeah. Or vice versa. Whenever they're saying it's terrible, the other side is saying it's great. And in recent weeks I've seen a large group of friends of mine who said, oh, the markets are terrible, terrible, terrible. And I never paid too much mind. I understand that. Okay. In their perspective right now. But again, a lot of them have been seeing trades like this where they're holding trades, hoping to all time highs, whatever it may be, try and capture a large trade and then round tripping. And a simple explanation, as we've shown right now Shows you as to why that has taken place and why even if they're in longs, no problem, why they should have cut or at least taken larger portions of size off.

Exactly. So I'm going to mark 6000 psychological whole number on the S P because a lot of people were also utilizing that particular level. Right. It's a very psychological whole number. A lot of people gravitate towards whole numbers. Right. You could use it as an area of resistance. Okay. So again, we have what investors perceive as bullish news. Right. The court saying that Trump's tariffs are unlawful under the act that he decided to, you know, put them under. Okay. A lot of people chase this move above that previous high. Right. Multi month highs. Right. It looks, it looks good. I. You. I cannot sit here and argue that it does not look good. Okay. For the, the long side. But again, when you add the VIX context into it, you have that extra layer of what's happening in the options market.

Yes.

Okay. So the options positioning in SPX was telling you essentially that it was coming into an area where that demand for SPX puts. Correct.

Was there, was the timing, did they coincide in their movements or was. Was they did. Yeah.

So like I said this, it happened right around 3:34am Again, I was sleeping. So. So not only did you have the S and P at 6000 psychological whole number. Right. There was also an area of resistance on the cash NASDAQ, which is you could use US 100. Right. And here we go. I have it drawn already. Where? Right. You have this area of previous support stemming From October of 2024, multiple areas of clear support at that area. Right. That also hit retested on that particular day.

Same day.

Same day. Okay. And then you also had resistance in the Dow Jones futures as well. So again, do you need the Dow Jones relative to vix? No. But it certainly does not hurt to

use especially in tandem with all of the rest as well. Yeah.

All happened at the same time. Okay. So we could also draw that as well.

Okay.

And so this was right here.

Okay.

So that move was right there.

Yeah. So you can see why so many people are holding long because you've seen this huge green candle for sure. And take away that line. And even with the line there, people assume when you see you on the day volatility, they see these large movements, they're probably in trades with P and L increasing. It's so easy to get blindsided by, or at least start to believe themselves that, oh, this is it, this is the breakout, this is the moment, 100%. Especially because no doubt they've probably been trying to capture these trades over weeks and months.

For sure. And truthfully, without a doubt, if I didn't have this trend line on the vix, I would have been doing that, that the S and P was going to break out at that point.

Got you. Yeah.

But again, because of this particular heads up. Right. Again, I mean very, very simply put,

each time, did you just not expect it to happen that fast?

No, not necessarily. I was hoping that it would happen during market hours so I could capitalize, of course. But you know, because the Vix was only 3 1/2% away from it the day before, I'm not shocked that it ended up getting down there within 24 hours per se.

Okay, so by the time you had gotten to the markets in the morning, the opportunity was moved away. Too much risk, reward wise.

Precisely. Yeah.

So how often, just out of interest, would you say that? I'm guessing it sounds like you're looking at more of a swing to day trading approaches in a bit more bigger picture in comparison to say scalping or are you quite fluid in terms of what you look for?

I would say I'm fluid because, and I mentioned this pretty often because a lot of people ask, hey, are you a day trader? Are you a scalp? Are you a swing trader? I always say that I don't put a timeline on my trades. Okay. In plain English, I have no idea what the market's going to do when I get into a trade. It could hit my entry or my stop loss in two minutes. It could hit it in two hours, it could hit it in two weeks. Okay. Once I'm in a trade, hands off, I put it on autopilot, which we'll get into all predetermined. So again, sometimes it results in a scalp where I get a quick move in my favor or against me. Right. Where it's stopping me out in 10 minutes. Right. Where technically that's a scalp. Right?

Yeah. Cool.

Whereas other times it doesn't.

So you don't dictate, you just follow the market thesis and what you've seen from the market. Plan out your stop loss, your take profits and then just whatever it will be will be 100%. Got you.

Yeah, yeah. So again, some are scalps, others are fricking two month long trades where it's kind of just going sideways where my stop loss nor my targets have been getting hit and I just let it do its thing. Okay, so we'll go back to this. Right? So that was the Outcome you guys saw what happened Is this. Okay, so. So that VIX trend line. So not only did VIX bounce at the key trend line. Right. Support, but it also aligned with S&P6K the psychological level, a key resistance area on the cash index for Nasdaq and then resistance on Dow Jones as well, ultimately setting up for a high probability trade. So again, this was the outcome of the S P relative to the bounce of VIX at that trend line. So VIX bounced at the trend line, went higher, put more pressure on the S P. S P could not sustain that pressure and it started to go down as the sell programs on those algorithms were also in effect as well

because the VIX was more, more pressure. So is it a case now that you mentioned that as you said, they're closely tied to what the VIX is doing? So if anything. I don't know if this is the right terminology, but is it kind of like a self fulfilling prophecy? Because as the VIX goes up, it then activates these programs which then introduces more cells in this case. So then the movement then takes place which then increases the VIX even more.

Exactly.

I'm getting it.

Yeah.

Who knew though? This is the thing I was just thinking about when I saw this and as we've gone through this, who knew that Wall street. The secret really is simplicity in a sense. Because I'm sure there's people out there. I'm sure you get it all the time. No doubt. People think, oh, Wall street complexity, right. The secrets. There's so much that must go into that. When in reality, as you see.

Yeah, very simple.

This is one of those. And I don't say this too too often, but this is one of those where I'm looking at it and I'm going, I should do this, you know, but I have to control myself because. No, this is amazing. Honestly, Honestly, I think it will blow a lot of people away in terms of the simplicity of it. And the interesting thing, actually just to go back for a moment, as it says here. Well, it didn't say here, but earlier in terms of five R6R trades, what's the reality of the strike rate with that?

Because.

Because a lot of people assume that high R trades and we've had Carmine on the show and he's showcased already his strike rate. But in terms of like most people assume high R means low strike rate. Right?

For sure.

Yeah. But what is the reality from your experience?

It really depends on the trader. Right. The strategy, the entry strategy the trader has. Right. Some people don't go for low R per se. Other people might only go for low R where they're looking for more quick. Yeah. Right. So I really don't think that there's a one size fits all answer.

I think it depends on the person's patience. Right. So that you could go high R but try and go high frequency and therefore strike rate, I would naturally believe would be lower.

You can argue that. But then on the flip side to that point is some people just. They prefer to have wider stops, which. Which basically makes the R kind of go down.

Yes.

So.

So on a comfortability level.

Correct.

Depending on the person. Yeah. This is the thing that I don't think. I think that's a misconception. I think it's a myth in the sense that people always assume that. Which for a lot of people it probably would be the case. But it always comes down to the person. Right. And their level of execution, level of experience, level of confidence. And you know, depending on the strategy itself. Right. Because someone could take the same thing and be able to execute it in a certain way. That makes sense for them for sure. Which, as you say, they might actually widen the stop. Which means that the same trade that you've taken for a 6R, they're taking for a free. Right. And the strike rate remains the same.

Exactly.

Or vice versa. You know, there might be someone who's trying to strangle the trade a little bit more and they actually get a higher R. But their strike rate might actually be less. Exactly. Because of the level of the stop loss that they've sort of shaved off.

We have two, but they're on the quicker side.

That's fine.

Yeah, yeah.

I'm speaking. That's great.

So this is an example. Yep. From a investitrade member who. This is pure self sufficiency, which is great to see because, you know, I'm constantly reinforcing these pieces of context and explaining how to, you know, use them at. To your advantage. Right. What they imply when you see them on the chart, how to use them, so on and so forth. So I have some screenshots here which I thought would be pretty cool to see. So this particular individual said, was there not a Vix S P divergence at the 5600 level in comparison to yesterday? I was able to buy at the 5600 level and actually scaled in and holding some because of your strategy. And then he. I guess he didn't see that. I did post about it because I. I sent him the link. I said, are you referring to What I just mentioned in the chat and he said lol. I did not see that. Let me take a look. Lol. Exactly. Happy I can see it live. Thanks for teaching this stuff. So this is the case where the S and P and the NASDAQ breach the previous day low. Right. Whereas the VIX makes a lower high, implying that the downside pressure is probably going to be short lived underneath those lows on the indices. So we're going to get into this. So you can see that that person posted it on May 7th. So we'll go to S&P on May 7th. Okay. Get rid of these. So I'm going to drop it down to. We'll do a 30 minute. So May 7th. Okay, so here we are again. You could use previous day low. But for this example, there was also another reference point that was also in effect which was this low over here. Okay. So this low occurred on Thursday, May 1, and then we also had a low in that general area on Tuesday, May 6th. So this particular day, not only did it breach below the previous day's low, but it also breached below a low from the previous week. Okay. So you know, in hindsight you could see that it ended up working. But I'm going to show you what the S, P and the NASDAQ did relative to the vix. And I know I said that extra layer was the NASDAQ making a higher low. For this example, that was not the case. The NASDAQ also made a low interest, a lower low. So you can argue that it wasn't as high probability of that one. However, the VIX was the main factor of the fact that it was showing relative weakness, which implies.

So in this case you wouldn't have, let's say the NASDAQ relative strength to trade that one higher probability, but overall the thesis itself is valid.

Correct. So we're going to do the same thing on the Nasdaq using those reference points. Right. Going back to May 7th. Right. Same concept where it had those same lows. Right. Not only did it have the previous day low, but it also had that other low down here. You could, you know, move it down. Whatever floats your boat. Okay, so you could clearly see between the two charts that I was just showing, not only did the NASDAQ breach below those those lows, but the S and P did as well. Okay, so if the VIX was at or above previous day's high, I would have bet that this breakdown on the S and P and the Nasdaq would have continued to the downside where you can go for that expansion below the lows and go for a. A further move to the downside.

Yeah.

On the flip side, similar to what happened on this scenario, the VIX was not able to get up to that previous day high, which implied that the demand for SPX puts was low, which again implies that institutions did not expect for, you know, further turbulence.

Yeah.

Okay.

And back to your point earlier that then once the VIX starts to come lower, activate cell programs. Or in this case would it be by programs, Sorry, on NQ and by program. Yeah. And yes. So then again, not self fulfilling prophecy. That's probably a weird terminology. What I'm getting at is that once that takes place and these things kick in, it then correlates over it then has the knock on effect.

Exactly.

That you're looking for. But by being able to correlate these things and understand these things, this allows you to have that confidence and to try and position yourself 100%.

Okay, so we're going to go back to May 7th on the Vix. Okay, so here's the Vix. We'll get rid of this. May 7th, okay, is right here using this particular high. This was May 6th high. Right. You could see May 7th never got up there. Implying again that if you were to

trade this as an example, let's say for example, you were trading the VIX to short the VIX just because it's up right now, would it be a case where once you see this failed push higher, you would then execute stop loss above, maybe either the wick or the high, for sure, as an example, and then targeting your levels accordingly. On the flip side, on the other pairs we were looking at, it would just. Would it be a case where once the low's gone and you see that closure, you're just doing the opposite, not necessarily a closer.

What I do is once the S and P and the NASDAQ both recapture both that previous day low. Yes, that's the trigger point.

So when you say recapture though, do you mean close above or do you. As soon as price is above.

As soon as price is above with some cushion. So I'll get into that right here. So, so S and P in this case, the depth that it went down was less deep relative to the nasdaq. Okay. So in theory you can argue that there was more relative strength on the S and P because it didn't go as deep. Okay. So essentially I would wait for both the S and P and the NASDAQ to recapture those lows in reference and then buy whatever One. So in this case, I would, I would personally do S and P because it was showing relative strength. Right. With some cushion, you could do call it 5608. Right. And again, you want to see that the NASDAQ is also back above that reference point before you pull that trigger. And then my stop loss. Right. Let's make that green for entry. Okay. And then my stop loss would be under that low.

Yeah.

Okay. So again, I personally believe that a candle closure is flawed because let's just say you're using. Give me a time frame. 50, 15 minute. By the time that 15 minute candle closes, what's to say it's not up here. Right. If it, if it squeezes and it gets up to 56.36, it's going to be very, very wide.

Comparison.

Yeah, comparison to that 55, 94 stop loss. Right. Even if you use a one minute, you can argue the same that one minute might squeeze where by the time it closes it's at 56, 20. So you're relying that the close won't go far in your desired manner.

Interesting.

Okay, so again, once you see that S, P and the NASDAQ break above those previous.

So as long as they're both above. Both above, then that ticks the box.

You get in to whatever one is stronger. In this case, in this case the S and P, which again, we're assuming that that was 5608ish.

Yeah.

Using a stop loss below. So now you're risking, call it, you know, 08 to 94 per se. Right. You're risking 12 handles to make 24, 30, you know, and then some. Yeah, right. Because ideally you want to go for more than 2 to 1 risk reward. That's always something that I kind of went by.

Dylan, I really appreciate you breaking this all down for us today. I know we got the green light to be able to do this episode and our podcast episode as well. But everyone at home, drop a comment with your biggest takeaway from this episode. I know it was such an in depth masterclass really into the VIX and its correlating factors. And again, I've learned so much personally. But any questions you have, drop it in the comment section below. I'll take a look. I'm sure Dylan will take a look as well. But make sure you like and subscribe most of all links for. I know you're not really on social media like that, but links. Any links that Dylan gives me will be in the description below, so make sure you check those out as well. And a huge thank you to him. So you know, really appreciate it. Make sure you hit subscribe though so you can get more playbooks and concepts like this from incredible traders like Dylan. Well, this has been char fanatics and until next time, everyone take care.