The Market Technicians Association is pleased to announce the winner of the 2015 Charles H. Dow Award as Amber Hestla-Barnhart for her submission, “Fixing the Vix: An Indicator to Beat Fear.”
The 2015 submissions represented a diverse and competitive array of research. The CMT Association is proud to recognize an outstanding paper that Demonstrates the Value of Technical Analysis to Active Asset Management.
Abstract: Volatility is widely considered to be a category of technical indicators with a simple interpretation - no matter how it is measured, volatility is widely believed to rise in a market downturn. This approach is applied to indicators such as the Average True Range (ATR), Bollinger Bands® BandWidth or the most widely followed volatility indicator, VIX, which is formally known as the CBOE Volatility Index®. VIX is widely known as the “Fear Index” because it often increases when the stock market drops and the fear of further price declines increases. While this concept sounds useful, there are significant limitations to executing trading strategies based on VIX and these limitations make VIX virtually useless for the average investor. Although it is not widely followed, there is a simple volatility indicator available in the public domain that can be used to implement trading strategies based on the concept of VIX. This indicator, the VIX Fix developed by Larry Williams, overcomes the limitations of VIX. This paper will explain the VIX Fix and introduce a quantitative trading strategy to profit from rising fear. In this paper, I will briefly review what VIX is, highlight some of the limitations of VIX, describe an alternative to VIX and then provide test results demonstrating how well the VIX Fix works. The main focus of the paper is on the test results.The full version of their paper can be found by visiting here. Amber will also be presenting her paper in our Educational Web Series on May 27th, 2015 at 12 PM EST. Be sure not to miss it!