Mastering Impulsivity: A Brett Steenbarger Strategy for Disciplined Trading in High-Volatility Markets (VIX)

Understanding Impulsivity in Volatile Markets

Trading VIX products or volatility ETFs such as VXX and UVXY requires a psychological framework that controls emotional decision-making. Brett Steenbarger’s research emphasizes awareness of behavioral patterns and self-coaching to overcome impulsivity, which often results in premature entries, excessive risk, and suboptimal exits. This article translates Steenbarger’s performance coaching into a concrete strategy for disciplined VIX trading.

Defining the Edge in High-Volatility Contexts

Volatility products oscillate violently, creating opportunities and increased risk. Your edge arises from controlling impulses that lead to chasing spikes or panicked stops.

• Focus on mean-reversion signals rather than trend chasing.
• Use volume spikes, RSI, and implied volatility expansions as triggers.
• Select setups with favorable risk-reward profiles; target minimum 2:1 reward/risk.

For example, on the 5-minute chart of the VIX Futures (ticker: VX), identify overextended ranges beyond a 1.5 standard deviation Bollinger Band move combined with RSI above 70 or below 30. These high-conviction setups address Steenbarger’s emphasis on confidence through measurable criteria.

Entry Rules Tailored to Psychological Control

1. Wait for a close beyond the Bollinger Band on the 5-minute timeframe. This signifies overextension.
2. Confirm RSI divergence or extreme reading (>70 oversold, <30 overbought).
3. Observe volume volume spikes greater than 125% of the 20-period average to confirm momentum exhaustion.
4. Enter limit orders one tick inside the candle that triggered the signal to avoid chasing price.

Example: VXX on 5/3/2024 open 8:00 AM EDT. Price breaks above the upper Bollinger Band at $16.35 with RSI 75 and volume 30% higher than average, enter a short limit at $16.34.

Exit Rules for Disciplined Profit Taking

• Place a trailing stop at 0.25 standard deviations below the entry price to lock in profits as price reverts.
• Set a fixed profit target at 1 standard deviation move from entry to capture mean reversal.
• Use a 10-minute timer to reassess position; if no move occurs within 10 minutes, exit half the position or close entirely.

On the same trade, if price retraces to $15.85 within 8 minutes, the trailing stop moves up accordingly, securing gains without impulsive early exit.

Stop Placement Anchored in Market Structure

• Use the opposite Bollinger Band as a hard stop threshold, entered beyond a confluence of support/resistance.
• For short entries above upper band, place stop 0.1 points above recent swing high; for longs below lower band, stop 0.1 points below swing low.

In VXX trades, if short at $16.34, and the local swing high is $16.45, place stop at $16.55. This respects volatility noise while containing losses.

Position Sizing Based on Volatility and Psychological Discipline

• Allocate no more than 1.5% of the total trading capital to a single VIX trade.
• Adjust position size to target a 0.5% max equity risk per trade based on stop distance.
• Monitor your emotional response live; if stress spikes above controlled threshold (tracked via pulse or subjective scale), reduce size or pause.

Example: With $100,000 capital, risking 0.5% ($500). If stop distance is $0.20 per share, position size = $500 / $0.20 = 2,500 shares of VXX.

Real-World Application: ES and VX Combo

Brett Steenbarger encourages traders to internalize market feedback rather than forcing actions. For experienced traders, combining ES futures and VX strategies can refine cues and reduce impulsivity.

• Monitor ES for correlated sell-offs or rallies that push VIX spikes.
• Initiate VIX mean-reversion plays only after ES confirms exhaustion.

For instance, ES drops 20 points within 30 minutes while VX spikes 3 points. Hold off from immediate VIX short until the VIX confirms overextension by closing outside the Bollinger Band on 5-minute charts.

Behavioral Tools for Sustaining Discipline

• Predefine max daily loss limits (e.g., 2% of capital in VIX trades).
• Journal emotional state and decisions post-session to detect impulsivity patterns.
• Apply Steenbarger’s technique of positive self-talk and cognitive reframing to delay trades by at least one candle after signal triggers.

Summary

Controlling impulsivity in the VIX requires an actionable protocol aligned with behavioral awareness. Implement entry triggers based on overextensions and volume confirmation. Use stops tied to market structure and position sizing attached to risk thresholds. Pair technical rules with real-time psychological self-monitoring to maintain disciplined execution. This combination reflects Brett Steenbarger’s insights into performance coaching and trading psychology, enabling experienced traders to negotiate high-volatility markets with rigor and measured confidence.