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VIX FIX: Volatility Measure by Larry Richard Williams
The VIX Fix is a technical indicator developed by Larry Williams, a trader and author of several books. Larry Williams also wrote for the Active Trader Magazine where he introduced the VIX Fix, a synthetic VIX calculation that can be applied to a single stock, ETF, futures or any security.
This synthetic VIX calculation was created to reproduce the performance of the Chicago Board Options Exchange Market Volatility Index (VIX), a well known indicator that measures the market risk using the implied volatility of an the S&P 500 index options. In other terms, the CBOE VIX measures trader's expectations of the market volatility over the coming 30 days. The VIX Fix doesn't use implied volatility of options and it performs calculation on single stocks as well as on indices. It allows us to create a volatility measure for each individual stock or security and then incorporate this measure in our trading systems or strategies to reduce the overall risk and consequently improve the trading strategy's return.
A high VIX Fix value indicates a high volatility in the underlying security while a low VIX Fix value indicates a low volatility in the underlying security. There are several ways to use the Williams VIX Fix in a trading strategy. You can for example apply the Bollinger Bands or the stochastic indicator on the VIX Fix for stocks or indices you are analyzing or you can rank the VIX Fix readings of the last N trading day and then create a rule that goes long if the VIX FIX of today is in the top Y readings. In order to create such a rule you can use one of the following trading indicators: Trading Indicator Rank or Percentile - Percent Rank of a Trading Indicator.
CBOE VIX as well as several other volatility-related indices can be downloaded using Volatility indexes.
Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
