VIX Spike Fade

Entry Logic

• Entry trigger: VIX closes 20% or more above its 10-day moving average.
• Confirmation: SPX shows a bullish reversal candle (hammer, bullish engulfing) on the 1-hour chart.
• Timeframe: 1-hour chart for entry confirmation, daily chart for VIX spike context.
• Location context: SPX is near a major support level.
• Market condition: High volatility, fear-driven market.

Exit Logic

• Profit target: VIX returns to its 10-day moving average.
• Scaling out: Scale out 50% of the position when VIX retraces 50% of its spike.
• Trailing stop: Trail stop below the low of the previous day on the SPX.
• Signal failure exit: VIX continues to spike and makes a new high.
• Opposite signal exit: A new VIX spike occurs.
• Time expiration: Exit after 3-5 trading days if the target is not reached.
• Momentum loss: VIX stalls and moves sideways for more than one day.

Stop Loss Structure

• Hard stop: A close above the VIX spike high.
• Soft stop: If SPX breaks below the low of the entry day.
• Max dollar loss: 1% of account capital.
• Max percent loss: 1% of account capital.
• Structural stop: Above the high of the VIX spike.

Risk Management Framework

• Risk per trade: 0.5% of account capital.
• Daily limit: 2% of account capital.
• Weekly limit: 5% of account capital.
• Max drawdown: 15% of account capital.
• R:R requirement: Minimum 2:1 risk-reward ratio.

Position Sizing Model

• Sizing approach: Fixed fractional sizing.
• Volatility adjustment: Reduce position size during extreme VIX levels (>40).
• Conviction sizing: A+ setups get full size, B setups get half size.
• Scaling in: Not recommended for this strategy.
• Scaling out: Scale out at predefined profit targets.

Trade Filtering

• Market conditions to avoid: Low volatility environments.
• Specific setups required: Clear VIX spike with a reversal signal in the SPX.
• Instruments: SPY, QQQ, IWM.
• Time restrictions: Avoid entering during the first 30 minutes of the trading day.
• Chop/news avoidance: Avoid trading around major economic news releases.

Context Framework

• Trend direction: Counter-trend strategy.
• VWAP relationship: Not applicable.
• MA relationship: VIX is far above its moving averages.
• Range location: VIX is at the upper end of its recent range.
• Higher TF alignment: Not applicable.

Trade Management Rules

• Breakeven: Move stop to breakeven after a 1R profit.
• Scale out: At 1.5R and 2R profit targets.
• Add size: Not recommended.
• Fast vs slow moves: Expect a fast move down in the VIX.

Time Rules

• Optimal window: After a significant market sell-off.
• Times to avoid: During periods of low volatility.
• Session notes: This strategy can be used in any trading session.

Setup Classification

• A+ setup: VIX spike above 40 with a clear reversal in SPX.
• A setup: VIX spike between 30 and 40.
• B setup: VIX spike between 20 and 30.
• C setup: VIX spike below 20.

Market Selection Criteria

• Instruments: VIX futures, VXX, UVXY.
• Volume: High volume on the VIX spike.
• Volatility: High implied and historical volatility.

Statistical Edge Metrics

• Win rate: 60-70%.
• Avg win: 2R.
• Avg loss: 1R.
• Profit factor: 1.8.
• Expectancy: 0.6R per trade.

Failure Conditions

• When strategy fails: During a black swan event or a sustained bear market.
• Specific scenarios to avoid: Chasing VIX spikes that are not confirmed by price action in the SPX.

Psychological Rules

• Mental discipline: Must be comfortable taking a contrarian position.
• Key mental discipline requirements: Patience to wait for the setup, discipline to exit when the signal fails.

Advanced Components

• Regime detection: Use a market regime filter to identify high-volatility states.
• Filters: Use a filter to avoid trading during news events.
• Correlation: Monitor the correlation between the VIX and SPX.
• MTF alignment: Not applicable.

Location

• Where strongest: During fear-driven market sell-offs.
• Where weakest: In low-volatility, grinding bull markets.