REVISITING Trading Market Volatility. Part 3

This is the 3rd “episode” in the Trading Market Volatility series. In this blog post I am going to show you one of my VIX (volatility) trading methods complete with pre-trade entry and exit requirements. 

My high impact US employment data (NFP) trading strategy using the CBOE Volatility Index (VIX) has one single entry criteria but I have created a strategy with 2 trade exit options depending on your risk tolerance and/or your ability to access you trading terminal at various times in the day. In this blog post, I am going to show the first and simplest trade criteria.

What is the the CBOE Volatility Index?

The VIX Index is a calculation designed to produce a measure of constant, 30-day expected volatility of the U.S. stock market, derived from real-time, mid-quote prices of S&P 500® Index (SPXSM) call and put options. On a global basis, it is one of the most recognized measures of volatility — widely reported by financial media and closely followed by a variety of market participants as a daily market indicator. –

To learn more about the background of this trading strategy and the theory behind it, please read the previous Market Volatility blog posts by clicking on the links below.

Trading Market Volatility. Part 1

Trading Market Volatility. Part 2

IMPORTANT! Before we continue, it is important to note that this is a new trading strategy. I have developed it using limited back testing data and I have only managed to “forward test” it for a very short period of time. The long term, live trading success of this trading strategy is yet to be proven so please DO NOT use the information in this blog post as trading or investment advice.

High Impact US Employment Data (NFP) Trading Strategy Criteria

  1. SHORT VIX futures on the close of the 5 minute candle 15 minutes before the NFP employment data release.
  2. Set STOP LOSS order placed above entry price.
  3. Set TAKE PROFIT order set at 2x risk value (stop loss size) below entry price.

Potential Reward:Risk ratio of 2:1 per trade entered.

The chart below shows a recent example of a trade using the entry and exit criteria shown above. This trade was entered prior to the release of the US employment figures (NFP) on the 6th March 2020.

Volatility Index – March 2020 Futures

Firstly, you will notice that the chart above is different to previous technical price charts I have shared. This is because I am not using my normal trading platform or broker for this trading strategy because of the type of financial instrument I am trading.  For this trading strategy you need access to VIX futures contracts for the current month you are trading.

The 2 arrows on the chart show both the short trade entry and exit candlesticks. The first arrow (down) indicates the candlestick that closed 15 minutes (3x 5 minute candles) prior to the NFP US employment data release at 13:30 (GMT) which is when the short position was entered. The second arrow (up) indicates the approximate time that the take profit order was triggered and the short trade position was exited for a gross return of 2R.

As you can see, it takes less than 30 minutes for the take profit order set at 2x risk (stop loss size) to be triggered and for the short position to be closed for a profit.

IMPORTANT! I am deliberately not sharing certain detailed information about the trade entry and risk management for this strategy. This is because this strategy with full detailed instructions, back testing data and trade examples is included with my Mastering The Markets – Retail Trading Course and it would not be fair on my customers to share content that they have paid for.

High Impact US Employment Data (NFP) Trade Example.

Volatility Index – 5 minute timeframe chart 10/01/2020

The chart above shows the full days price action on Friday 10th January 2020. This is the day the NFP US employment data was released for that month. The first arrow shows the short position entry 15 minutes prior to the data release at 13:30 GMT. The second arrow shows the approximate short position trade exit where the take profit order would have been triggered.

This trade took slightly longer to achieve the desired results but a gross return of 2R in under 2 hours is still excellent.

End note:

As explained at the beginning of this blog post, this strategy is something new that I have been working on and it is still in the development and initial “live testing” phase. I am trading very small amounts of risk because I am gathering live market data and trade examples to confirm if this strategy has the potential to be profitable long term.

The theory behind this strategy is very simple and it relies on the ability to trade a recurring pattern that I believe exists within the financial markets.

COMING SOON! A full NFP VIX futures trading strategy guide with trade entry/exit and trade management rules. Along with trade examples and back testing data.

If you are interested in learning my personal trading strategies, please consider my Mastering The Markets – Retail Trading Course. Head over to my Financial Analysis Education page to check out all of my education packages and the deals available.

Useful Links:

All my technical analysis is done using the TradingView platform. You can get access via the link below.

My preferred broker of choice is IC Markets. Low spreads and trading costs really help long term profitability. A link to their site is below.

FTMO Trader Funding Programme.

Thanks for reading and please don’t forget to LIKE, SHARE and FOLLOW my blog to stay up to date with the latest market analysis and trading education posts.

DISCLAIMER: None of the information posted on this site is to be considered investment/financial advice. Trading is high risk and you should only trade with money you can afford to lose.

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