ConnorsRSI VIX Strategy Identifies Up Days in Down Markets

As prices fall, the mentions of volatility increase. Trading SPY with VIX and ConnorsRSI describes how to trade SPY based upon volatility and identifies the exact time to buy and sell based on quantified rules.

To be tradable, a market-related insight should be quantified. In Trading SPY with VIX and ConnorsRSI we explain exactly how to use VIX to trade SPDR S&P 500 ETF (NYSE: SPY). This strategy uses VIX to generate the buy signal in SPY and then uses the price action in SPY to determine the sell signal. This is an important distinction. We are trading SPY so basing the exit on SPY rather than VIX increases the odds of a successful trade.

As stocks started selling off in early October, SPY fell on four of the five trading days in the first full week of the month. The only up day was on Wednesday, October 8, after the release of Federal Reserve meeting minutes sparked a rally. This rally came after the strategy detailed in Trading SPY with VIX and ConnorsRSI gave a buy signal at the close on Tuesday, October 7. That signal is marked with an arrow on the chart of VIX shown below. It was the only buy signal in that week.

The sell signal came at the close on Wednesday, October 8. The chart of SPY is shown below.

This strategy allowed traders to benefit from the only up day in the market’s worst week in more than five months. From back testing, we know that this strategy has been consistent in bull and bear markets. The next table shows the percentage of winning trades in each year since 1994. That time frame includes two full bear markets and three periods when prices were in up trends.

If we have entered a bear market, this strategy could be one tool that allows traders to benefit from the occasional up day we generally see in an extended decline. To learn more about Trading SPY with VIX and ConnorsRSI, click here.