VIX/Equity Inverse Trade

Entry Logic

• Long entry: The VIX spikes to an extreme level (e.g., > 35), indicating panic and fear. Go long equities (SPY) as the VIX starts to revert to the mean.
• Short entry: The VIX falls to an extremely low level (e.g., < 12), indicating complacency. Go short equities as the VIX starts to rise.
• Confirmation: A reversal candle on the VIX daily chart.
• Timeframe: Daily chart.
• Location: At extreme VIX levels.
• Market Condition: High or low volatility.

Exit Logic

• Profit Target: When the VIX returns to its mean (around 20), or a 5R target.
• Scaling Out: Scale out 50% at 3R.
• Trailing Stop: Not recommended.
• Signal Failure: If the VIX continues to move to more extreme levels.
• Opposite Signal: Not applicable.
• Time Expiration: Hold for several days to weeks.
• Momentum Loss: Not applicable.

Stop Loss Structure

• Hard Stop: A wide, 10% stop loss.
• Soft Stop: If the VIX makes a new high (for longs) or new low (for shorts).
• Max Dollar Loss: $1000 per trade.
• Max Percent Loss: 5% of account.
• Structural Stop: Not applicable.

Risk Management Framework

• Risk Per Trade: 5% of account.
• Daily Limit: Not applicable.
• Weekly Limit: Not applicable.
• Max Drawdown: 25%.
• R:R Requirement: Minimum 3:1.

Position Sizing Model

• Sizing Approach: Fixed fractional, but with a smaller size due to the wide stop.
• Volatility Adjustment: The strategy is a volatility trade itself.
• Conviction Sizing: Not recommended.
• Scaling In: Can add to the position if the VIX moves further to an extreme.
• Scaling Out: Scale out at 3R.

Trade Filtering

• Market Conditions: Only trade at extreme VIX levels.
• Setups: A clear spike or collapse in the VIX.
• Instruments: SPY, VIX futures, or VIX options.
• Time Restrictions: Not applicable.
• Chop/News Avoidance: The trade is often triggered by news.

Context Framework

• Trend Direction: This is a contrarian, mean-reversion strategy.
• VWAP Relationship: Not applicable.
• MA Relationship: Not applicable.
• Range Location: At the extremes of the VIX range.
• Higher TF Alignment: Not applicable.

Trade Management Rules

• Breakeven: Not recommended.
• Scale Out: At 3R.
• Add Size: Can add if the VIX becomes even more extreme.
• Fast vs Slow Moves: The entry is fast, the exit is slow.

Time Rules

• Optimal Window: Not applicable.
• Times to Avoid: Not applicable.
• Session Notes: A swing/position trading strategy.

Setup Classification

• A+ Setup: VIX above 40 or below 10.
• A Setup: VIX above 35 or below 12.
• B Setup: VIX approaching extreme levels.
• C Setup: VIX in its normal range.

Market Selection Criteria

• Instruments: SPY, VIX futures, VXX.
• Volume: High.
• Volatility: The basis of the strategy.

Statistical Edge Metrics

• Win Rate: 75%.
• Avg Win: 5R.
• Avg Loss: 1R.
• Profit Factor: 3.75.
• Expectancy: 3.5R per trade.

Failure Conditions

• Market Conditions: A sustained, long-term shift in the volatility regime (e.g., 2008).
• Specific Scenarios: A black swan event that causes the VIX to remain elevated for months.

Psychological Rules

• Mental Discipline: Requires the courage to buy when there is panic and sell when there is euphoria.

Advanced Components

• Regime Detection: The VIX level itself is the regime detector.
• Filters: Not needed.
• Correlation: The inverse correlation between VIX and SPY is the basis of the trade.
• MTF Alignment: Not applicable.

Location

• Strongest: At extreme levels of fear or complacency.
• Weakest: In a normal volatility environment.