🔥 Using The VIX To Time Bitcoin Bottoms

28 Nis 2022

From Investopedia: The CBOE Volatility Index (VIX) is a real-time index that represents the market’s expectations for the relative strength of near-term price changes of the S&P 500 index (SPX). Because it is derived from the prices of SPX index options with near-term expiration dates, it generates a 30-day forward projection of volatility. Volatility, or how fast prices change, is often seen as a way to gauge market sentiment, and in particular the degree of fear among market participants.

In short, the VIX is a way to measure fear in the (stock) market. Higher values means more fear and mostly coincide with bearish price action.
Consequently, a falling VIX means that investors gain confidence, which in turn in good for the markets.

In addition, the VIX can be used to determine if the bottom is likely to be in or not, see the chart for some examples.

VIX tops often coincide with short- and/or long-term Bitcoin bottoms. A strategy that I use it to wait for a strong reversal in the VIX to occur before scaling in back into the market. You won't time the market perfectly, but you're able to capture the majority of the bullish reversal. Furthermore, wait for the VIX to become overbought on the RSI on higher timeframes (>4H) before trying to time a reversal.

As of yesterday, the VIX is falling sharply after seeing a big rise since April 3rd. This could signal that we're now trading at a (temporary) bottom and that we're likely to see more bullish price action in the near future.

Keep in mind that the VIX will only tell one part of the story. Never solely rely on the VIX giving you a signal to either buy or sell.