How To Use Williams Vix Fix Indicator

Will A Synthetic VIX Assistance Your Trading?

ByJeff Swanson

May 24, 2021

EasyLanguage, indicator, Jeff Swanson

On a contempo discussion on our EasyLanguage Mastery FaceBook group, a reader pointed out an interesting indicator called, VIX Fix. The VIX Fix was designed past Larry Williams to overcome the limitations of the VIX. What would that be? It's only available for the S&P 500, Nasdaq Composite, and DJIA. But what about the other markets?

Larry created a simulated or synthetic VIX to be used on other markets. This indicator was originally published in Active Trader, 2007. Below is the formula:

VIX Set up = (Highest (Close,22) – Depression) / (Highest (Close,22)) * 100

The formula uses the price of the market to estimate volatility. To calculate information technology, yous find the highest close of the past 22 bars and then decrease the low of the current bar. The result is divided past the highest close of the last 22 confined. Finally, the issue is multiplied by 100 to calibration the indicator readings. Williams chose the 22-day period considering, like the VIX, it represents the maximum number of trading days in a calendar month.

What does it look like?

I coded upwards this indicator and placed information technology on a chart of the S&P. I so added the Constructed VIX and the real VIX. Thus, we can now compare the existent VIX vs our synthetic VIX. The chart below is of the S&P futures (in green). Beneath it is our Synthetic VIX (in red). Finally, at the bottom is the real VIX (in orange).

Then the Synthetic VIX looks like a fairly good representation. Yous tin see that our Synthetic VIX follows the traditional VIX closely. We come across VIX extremes tend to coincide with cost lows. This makes sense as fear rises as the marketplace plunges. As pointed out in the original article, fear is a stiff emotion then you can conspicuously meet ownership opportunities equally the Synthetic VIX spikes. Selling opportunities are a bit more difficult to discern.

Allow'due south build a uncomplicated strategy based on the Constructed VIX just to see how well it tin capture purchase and sell curt opportunities.

Normalizing With Percent Rank

Before we build our strategy I want to first normalize the Synthetic VIX values. You will notice they are unbound, thus it's a flake more hard to determine buy and sell signals. To set this I'm going to use TradeStation's born part called,Percent Rank. This function can be used to evaluate the relative standing of a value within a information set. It does this past ranking today's Synthetic VIX value compared to the contempo past.

Using the Percent Rank function generates a ranged value in the form of a percentage betwixt 0 and 100. This makes information technology easier to locate our purchase/sell signals.

VixFix = VIX_Fix( 22 );
Intportion( percentrank(VixFix, VixFix, 44 ) * 100);

In the lawmaking above, we are first computing our Constructed VIX value by using our custom function, VIX_Fix with a look back of 22. Adjacent, nosotros use the Percent Rank part to rank the current Synthetic VIX value against the final 44 values. I chose 44 considering it's only a doubling of the default 22 lookback period of our Synthetic VIX part. Thus, our percent ranking of today's Synthetic VIX value will be ranked confronting the past 44 values in our information set. The percent rank is a percentage as a decimal number. I and so multiply this number by 100 and driblet the fraction (IntPortion part) to give united states an integer between 0 and 100.

Organization Rules

Become long when the ranked Synthetic VIX value is above 95%.
Go short when the ranked Constructed VIX value is below 5%.

Environmental Settings

I coded the above rules in EasyLanguage and tested it on the E-mini S&P futures market going back to 1998. Before getting into the details of the results let me say this: All the tests within this article are going to apply the following assumptions:

Starting account size of $25,000
Dates tested are from January ane, 2000 through December 31, 2018
One contract was traded for each signal
The P&L is not accumulated to the starting equity
No deductions for slippage and commissions
There are no stops

Nosotros tin can meet this indicator does selection the depression points in price rather well. While there are some well-timed short trades in the image above, overall the sell side signals are not not bad. You tin run into that past looking at the performance report below. This fact is not too surprising when yous have a long bias in the S&P.

Looking at this blazon of indicator it reminds me of the 2-Period RSI strategy I've worked on in other manufactures because we are doing something similar. That is, looking to fade price extremes. Only with the 2-period RSI strategy, we used a short term exit based upon price crossing a 5-day moving average. Let's try that here.

SellSignal = Close > Average( Close, 5 );
CoverSignal = Close < Average( Close, 5 );
If ( SellSignal ) then Sell next bar at market;
If (CoverSignal ) then Buytocover next bar at market;

Below is an case of the short trades and it does a decent job of locating brusque-term opportunities.

This simple indicator worked well enough to actually show a modest turn a profit on the brusque side which is hard to do on the S&P. This tells me that this indicator may very well exist helpful in building a profitable trading system.

I've non tested this indicator on other markets such as aureate or oil. Nor have I experimented much with testing other filters and exits. Just I'm pleased with what I've seen given the first few tests on the S&P. So, can you lot use this in your trading? Information technology may be worth your fourth dimension to perform some tests.

You can download a re-create of this indicator inside ourEasyLanguage Mastery Insidersubscriber's area. Not a fellow member? Information technology's free when you bring together our email list! So worth it! 🙂

Also, join the give-and-take on our private Facebook Grouping. Discussions on this indicator and other conversations are happening right at present. Then join the states!

Almost the writer

Jeff has built and traded automated trading systems for the futures markets since 2008. He is the creator of the online courses System Development Master Form and Alpha Compass. Jeff is as well the founder of EasyLanguage Mastery - a website and mission to empower the EasyLanguage trader with the proper knowledge and tools to become a profitable trader.