I posted a chart over the w/e showing how the VIX, the ‘fear’ index, had broken up through a weekly descending trend line. This was a clear warning to traders that some increasing volatility might lay ahead. A copy of this w/e chart is re-produced below.
VIX weekly: a bullish triangle breakout was noted:
The bullish move on this fear index has continued although it is still trading under the 30 level for the time being. Thus, if nothing else, expect the unexpected! A close and hold above 30 would suggest much more volatility might be heading our way.
Hindsight is always so clear but one thing has stood out for me as a trader in the Asian region watching the VIX on the rise or, at least, spiking. That is, to expect unpredictable and much wider market swings through the higher-volume US session. The following 30 min charts help to illustrate this situation. The different trading sessions are identified by an indicator known as a ‘Tokyo Break Out Box’. The left hand side of the blue box denotes the Asian session, the right hand side denotes the start of the London/European session and the the rest of the chart is primarily the US session:
E/U 30 min: the E/U had looked like it was heading to make a bearish flag breakdown during yesterday’s Asian session but the US session wiped any such move out. Periods of such high volatility would be better traded off shorter time frame charts during the US session. Something I’m not able to do present.
Kiwi 30 min: ditto here for the Kiwi.
U/J 30 min: the U/J hasn’t moved much at all over recent sessions….. until last night!
Summary:
- Without wanting to sound trite, I consider that traders, especially Asian session traders, should exercise extra caution with open positions whilst volatility is increasing. Watch for any close and hold above 30 for the VIX as this would suggest increasing volatility.
- Trading off shorter time frame charts during the US session would be a preferable trading regime for those that can do so.
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