Tag Archive | "technical analysis"

Volatility Analysis: The Next Step in Trading

Monday, July 30, 2012


Every investment is an instance of a more general schema: Because of q, I believe that p, so I will risk some money to make a profit if p is true. The proposition p could be about anything: it could be about the value of a company, the yield of a crop, or the outcome of a football game. Every case in which you risk some capital in order to profit from a future event is composed of the two activities mentioned in that…

How to Perform Technical Analysis on the VIX

Tuesday, July 3, 2012


Just kidding: you can’t.  By “technical analysis” I mean the practice of drawing inferences about likely future prices based on the visual patterns displayed on a chart. We can exclude rules-based, objective strategies here: those are beyond reproach because they can easily be verified. For example, “buy asset x when the n-period moving average crosses above the m-period moving average” is a strategy we can test historically and rigorously – a computer can do much of the hard work of…

Storytelling and Technical Analysis

Saturday, February 4, 2012


Humans can’t not tell stories: that’s the result of decades of research in cognitive science, psychology, neuroscience, and philosophy into our tendency to string together disparate events into coherent narratives. If you’re philosophically inclined, you know that David Hume got it right centuries ago: when we identify causation, what we are really doing is composing fictions to help us make sense of the buzzing world around us. But it would be a mistake to confuse our convenient fictions with the…

A Bubble in the Pot of Gold?

Wednesday, September 29, 2010


The comment I posted in response to Jared's latest feature article, “Why Conventional Hedging Methods Fail”, alluded to my opinion that gold is the current leading candidate for what I'll call “bubble watch”. A growing number of analysts are jumping on the gold-bubble bandwagon, but predicting when a bubble will burst can be frustrating (and capital-crushing). My comment referred readers to Didier Sornette's book Why Stock Markets Crash: Critical Events in Complex Financial Systems...

A Bullish Sign in the “Golden Cross”?

Thursday, July 2, 2009


In case you’ve missed it, technical analysts have been atwitter over sightings of the mystical-sounding “golden cross”. Among the latest observations from the mainstream business press are a Barron’s online article posted yesterday and a Bloomberg piece from last week, but recent talk of the fabled Crux Aurea dates back at least as far as early June, when the daily chart of the Nasdaq Composite Index showed the 50-day simple moving average crossing above the 200-day…

Long Vega Plays for a Market Breakout

Friday, May 29, 2009


As pictured below, equity indexes have been highly range-bound since the end of April.  That trading range has been between about 470 and 510 in the Russell 2000, and 865 and 930 in the S&P 500. I doubt that this range is likely to persist for much longer. Fans of technical analysis will note that SPX and RUT are caught in the narrow space between their respective 50- and 200-day moving averages: a break above or below either average…

More Technical Analysis of the VIX

Wednesday, February 25, 2009


Back in December, we considered whether the VIX, despite how fundamentally different it is from an equity or commodity, might be a good candidate for technical analysis after all. We haven’t come up with any better theory as to why this might be, nor gathered empirical evidence to prove the theory we proposed at the time—i.e., that options traders implicitly trade volatility every time they decide when and what to buy and sell, making the VIX, as a…

An A Priori Argument Against the Technical Analysis of Leveraged ETFs

Tuesday, February 10, 2009

1 Comment

One of the trading myths we noted recently has generated some questions.  There seem to be some passionate proponents of applying technical analysis to leveraged ETF charts out there, and while that notion has already been debunked elsewhere, we thought we’d take a different approach, just for fun. Here’s an argument in favor of technical analysis based on support and resistance.  Define “support and resistance” however you wish, as long as the definition has to do with price behavior…

Top Five Trading Myths

Thursday, January 29, 2009

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These are the top five trading myths that we would kill right now if we could.  Since human brains are wired to remember often-repeated associations as true even if they’re false, we’ll state the true propositions. Technical analysis does not apply to 2x, 3x, and related inverse ETFs that track the daily changes in some underlying. You can’t trade the spot VIX; not with VIX futures, not with VIX ETNs, and not with VIX options. Credit spreads are…

Technical Analysis and the VIX, Revisited

Tuesday, December 16, 2008

1 Comment

We have our internal debates here at Condor Options (after all, group-think is a sign of an unhealthy organization), and one of them is about how much in the field of technical analysis is useful and how much is just haruspicy. Nowhere is this question more controversial than in the case of the VIX. As an index of options premium, it’s a derivative of a derivative—and despite the fact that you can trade the VIX, indirectly,…


Jared Woodard specializes in trading volatility as an asset class. With over a decade of experience trading options and other volatility products ... Read More


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