Rajandran R Founder of Marketcalls and Co-Founder Algomojo. Full-Time Derivative Trader. Expert in Designing Trading Systems (Amibroker, Ninjatrader, Metatrader, Python, Pinescript). Trading the markets since 2006. Mentoring Traders on Trading System Designing, Market Profile, Orderflow and Trade Automation.

Testing Vix 5% rule with Nifty

55 sec read

Trading Markets   states that 

The proper way to use the VIX is to look at where it is today relative to its 10 day simple moving average. The higher it is above the 10 day moving average, the greater the likelihood the market is oversold and a rally is near. On the opposite side, the lower it is below the 10 day moving average, the more the market is overbought and likely to move sideways-to-down in the near future.

This wisdom is further distilled into what TradingMarkets calls The Trading Markets 5% Rul e: “Do not buy stocks (or the market) anytime the VIX is 5% below its [10 day simple] moving average.”

The Same strategy has been applied to Nifty to find out the next day result after breaking either  above  5%(Buy Signal) or Below -5% and the strategy is to check the Next day behaiour of Nifty with repect to the Signal. And if VIX falls between  -5% to 5% then the very next day it is declared as a Dont Trade Day.

Samples are taken from 01-Jan-2009 to 13-Mar-2009(47 Trading Sessions) to test the strategy and it found that out of 47 trading sessions Vix has given a buy/sell signal on 16 trading sessions. And out of 16 trading signals, 11 Signals are found accurate with big moves in nifty counting from day high and 5 trading signals are Found inaccurate with Big moves.

Vix 5% rule is implemented in google spreadsheet for your view . And for recent signals from vix you are recommended to check out the link.

 

Rajandran R Founder of Marketcalls and Co-Founder Algomojo. Full-Time Derivative Trader. Expert in Designing Trading Systems (Amibroker, Ninjatrader, Metatrader, Python, Pinescript). Trading the markets since 2006. Mentoring Traders on Trading System Designing, Market Profile, Orderflow and Trade Automation.

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11 Replies to “Testing Vix 5% rule with Nifty”

  1. dear sirfor any rule it must work in all market conditions try testing this in sept oct 08 or aug 08 and u will know the futility of your commentsi dont mean to critise but just check so that u may avoid wrong interpretations just made by u thru a 47 period testing

  2. Dear sir,Please could u incorparate 10 day MA of Vixin MC Tracker V1.0 (as you have done for indo/china ratio), so that we can follow it to see how it works on a longer time frame.Looking foward to the addission soon.

  3. hi, rajendranyour site helps me a lot to upgrade knowledgemany thanks for your efforts

  4. @Hiamnsu and EveryoneYes it should be tested under various market condition. Will try it and inform you people here again

  5. Dear Bhai Rajandran ji,Greetings! Your blog is a great learning experience. COuld you also provide the value of 10 DSMA value of EOD TRIN alongwith other autogenerated data. I’d be deeply obliged.With Warm Regards,”Bhaloo”

  6. Bhalooji,Link for Breadth Charts for Nifty has been added for your convenience in the right side column.Hope you can get the charts from there

  7. Rule didn’t work for me either but i feel this rule shouldn’t be followed blindly but can be used as one of the techniques to decide on the trading strategy…Anyway, someone asked how India Vix is calculated – read here

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