The VIX Index

There are many misunderstood aspects of Technical Analysis, and the VIX is certainly one of them.  Very few analysts and traders that I have encountered understand how the VIX is constructed and what it actually demonstrates.

In my view, while the VIX may be a useful mechanism to trade with, the analysis of this indicator in order to predict future market movements is a useless waste of time.  All it shows is a current snapshot of the market. It is essentially like trying to predict who is going to win a race by standing at the finish line and seeing who crosses first.  Indicators need to be predictive and this one isn’t.

This short essay will shed some light on this widely misunderstood indicator.