For more than a hundred years of the formation and development of the global financial market, leading researchers and traders have always mentioned two main psychological extremes that govern almost every human action in the market Greed and Fear. Every "Cao Nhan" concludes that if he can manage Greed and Fear, he will sooner or later stand on the ranks of the 10-year-olds on the market. the school pushes the button, the money automatically prints.

However, being human, most of them are "haunted" by these two extremes (because if not possessed by it, they will be drought with the Buddha), so far, the number of Trader brothers can print. Money is very little, but the amount turned into money printers for Market is countless.

When the market is peaceful, there are no waves, and people's hearts are peaceful, its price runs smoothly. Uptrend is still an uptrend, the downtrend is still a downtrend, and sideways can continue sideways because people don't have to panic or worry. However, when an unexpected event happens (Brexit, US presidential election, ...), the market will become bustling, this bustle makes the market dance. This is the time when either Greed or Fear becomes the most extreme, leading to greater volatility, the price plunges down the hammer.

To measure the two extremes of Greed and Fear, reflected in the fluctuations of the market, international financial people created an index called VIX - Volatility Index - or another name is Fear Index - An index measuring fear (of course, used for the market, not for horror movies).

What is the VIX Index?

The VIX index was built by the CBOE (Chicago Board Options Exchange) based on the options index of the S&P 500. From there the VIX index is calculated and it measures the expected volatility of the next 30 days.

VIX is one of the most amazing Market Sentiment metrics for Traders and Investors today.

How to trade with VIX indices

To learn how to trade with VIX, let's take a look at how the market reacts to Fear. The more fearful investors become, the more they will find safe investment channels such as Gold, US government bonds, low-interest currencies like JPY or CHF and they will avoid risky channels such as stocks, real estate, high-interest-rate currencies. The direction of investment will be reversed if they run out of Fear. When VIX increases, fear increases, decrease VIX indicates decreased fear. Looking at VIX, you will see whether the market is Afraid or NOT Afraid to get down in the right direction.

Products directly affected by VIX are US stocks, especially general market indices such as S&P 500, DowJones, Nasdaq. For every VIX increase, these comrades will die, because when the investors are afraid, they will immediately flee the stock market. At this point, gold or bonds will increase in price.

It is possible to trade VIX with US stocks through divergences - divergence - as follows:
  • VIX increases and S&P 500 increases => SP 500 may decrease.
  • VIX increases and S&P 500 decreases => the downtrend of the S&P 500 is well supported
  • VIX declines and the S&P 500 increases => the uptrend of the S&P 500 is well supported
  • VIX decreases and S&P 500 decreases => S&P 500 may rise again
Of course, this relationship is not absolute and may be confounding like other technical indicators.

There is an article that the inverse correlation between the VIX and the S&P 500 is about 80%, which means that 80% of the time, these two indicators run in opposite directions.

To what extent should VIX be noted:

There are some studies showing that VIX surpassing 40 is a must because it can cause US stocks to initiate a downtrend. In the past 10 years, the VIX milestone, especially when the US crisis occurred in 2008. When the VIX reached nearly 90