VIX Approaching Single Digits
John
and not worry about trading. But that is where I come in. Put away
the sun tan lotion and let's get back to making money!
Any thoughts out there on the VIX? It's at all time lows in the low
10's now. Although in the early 90's, the vix did get down into the
single digits (I think around 7), we didn't have the VIX contract then.
Seems to be a lot of complacency out there.
John
Michael Catolico
impossible to sell here with any confidence. other than a few story
stocks, i think it really isn't a bad idea to slather on the sun tan
lotion and not worry at all about the markets.
related to this, i've been think a little about whether a retail trader
has any advantage over the pros. the only thing that i can say
definitively in the retail customer's favor is that s/he does not have
to trade. pros pretty much have to sling it out month after month trying
to manufacture some positive cash flow. a retail customer is under no
such compunction. folks should not have to feel that they have to be in
the market all the time. patience may be the best strategy right here
(or at least a few backspreads for a credit).
m
John
buying it is like buying a falling knife as it keeps going lower every
month. The index traders are having a tough time with 5 pt ranges in
the ES and stock traders are frustrated by the lack of follow through.
Definitely a tough market.
I agree with you about the retail trader not having to trade. Of
course you could say the same thing about the pros too. Not trading is
better then losing money. Sure a pro has to generate cash flow. But
zero cash flow is better then negative cash flow. LOL.
Of course I will say this, being the optimist that I am, it's these
kinds of markets that really make a trader. Every trader has a market
where he/she can do very well in and they always think many times its
because of them when in fact, it could just be market conditions. This
is when you find out how good of a trader you really are. This is when
you find out where the holes are in your system or methodology. These
kinds of markets allow you to improve your system and your technique so
when the markets do improve, you are that much better. Staying out of
tough markets is a lot like an athlete being afraid to go up against a
better team or a better player. If you don't push yourself, you never
make it to that next level.
John
Michael Catolico
i believe that we should always try to find ways to improve our
technique, knowledge, etc. - whether trading or just living life. but
when it comes to risk there is no reason to embrace all challenges.
that's just gambling or being macho. using your sports analogy, there
are many examples of athletes that either took on all challenges ( some
succeeded - bo jackson, deion sanders; others failed - think of MJ
playing baseball). there are also many athletes that really focused on
finding just a few situations that they dominated: think of pete
sampras only playing the majors or lance armstrong basically only
focused on the tour de france.
it is hubris to think that short term trading success is proof of
trading skill. but if over the long haul you find that you really do
well in certain markets and fail miserably under other conditions that
knowledge can be turned into an advantage. you may never learn how to
trade a dull market (or a trending market or a volatile one, or whatever
your achilles heel is), just as some champion thoroughbreds can never
run well in the mud. it's prudent to "scratch yourself from the race"
when you recognize you can't win as opposed to pressing your luck.
best,
m
John
misunderstood my point. Hence my statement about it being worthwhile
for even professional traders to stay out of the market. Negative cash
flow is worse then zero cash flow.
I think picking your spots is very important. One should not feel they
need to be in the market all the time. The hard part is knowing this
information. It really only manifests itself after the fact. Kind of
like an athlete that plays hurt and then after the game when the team
loses, the coach says, well, maybe we should not have started that
player. Yet if they win, they will give him the game ball and tell him
what a great job he did playing hurt. LOL.
Obviously we could go back in time and look at our bad trades and
realize we would have been better off not making them. And as far as
trending markets and choppy markets, it's a lot like bubbles, its very
hard to recognize these things when your in them. Only long into a
trend do we look back and notice what a nice trend something is. Same
with the VIX. The market has been dying for months now and only now
the VIX is approaching single digits. Which probably means it will get
very volatile shortly after everyone has thrown in the towel. Markets
like to disguise themselves. If we all had the ability to recognize
exactly what the market was doing, it would be easy money trading.
But like I said before, I do agree that knowing your strengths and
weaknesses is a very important skill set. Nobody should take risk for
the sake of taking risk. You should always take calculated risks and
only when you believe the payoff is in proportion to the risk you are
taking.
BTW, Pete Sampras is one of my favorite athletes. And despite the fact
that clay was his worst surface, he never gave up trying to win there.
He almost did in 1996 when he made the semi's. And Andre Agassi who
always shunned the grass surface at Wimbledon early on in his career
due to his lack of big serve, would eventually embrace that surface and
win the tournament in 1994.
Also MJ playing baseball had more to do about ego then taking risk.
And that is something that everyone needs to keep in check. Ego
probably has destroyed more traders then bad markets. You don't trade
because you have something to prove, you do it to make money.
John
Michael Catolico
recognize poor or unsuitable markets for our trading styles as the
culprit in hindsight, the market does at least offer real time
opportunities for self assessment. it's called a p&l statement. if the
report card is filled with mostly "L's" then it's a pretty good alerting
system to reign in your trading. after some post mortem analysis you may
find that the reasons for losses are clear (e.g. trend trading in a
whipsaw market) or the reasons could remain a mystery. solving that
mystery is just as important - and maybe more important - than
toughing it out in a poor market.
m
Aaron
low, it's time to go," meaning it's time to get of the markets as
volatility is anticipated to pick up. In your opinion, is there any
"truth" to that old adage? Thanks.
John
Funny, never heard that exact phrase before. Historically speaking,
the VIX has been used quite effectively as a sentiment indicator. A
very low VIX reading seemed to signal complacency in the marketplace.
This lack of fear seemed to indicate at least short term tops. However
recently the VIX has become less reliable for calling tops and bottoms.
I would say with the VIX hitting these extreme levels, the market is
going to have trouble going much higher. It's generally hard for the
market to rally when no one is bearish and vice versa. Using the
phrase "When the VIX is low, it's time to go" is a little subjective.
How low is too low? This could be the beginning of a long period of
single digits VIX readings. So what is low now. Low a few years ago
was 18 to 20. Now low is 8 to 10. Kind of hard to quantify it. What
I will say is, low volatility seems to beget higher volatility and vice
versa. So the one thing you can count on going forward is at some
point, we will probably see a sharp increase in volatility. Should
come sooner rather then later.
John
John
before closing at 10.23. We may see 8 on the VIX by Labor Day.
John