What happens when "risk" is turned into a mimetic poly-alloy? We get
Vixenator II and "risk" turns into "opportunity"! While working on a risk ratio, a statistical approach towards VIX and SPX turned out to be rather promissing.
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| SPX weekly chart |
Back in January a statistical framework was provided for DMI, MACD and RSI. For creating
Vixenator II the same approach is used. For the sake of brevity please consult the mentioned
posting for the theoretical background.
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| Bell curve of "normal distribution" |
By design
Vixenator (I) was limited to daily charts. For the sequel a new composition is used resulting in an indicator way more mouldable than its predecessor: because of its "liquid elements"
Vixenator II allows for application on all timeframes.
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| SPX daily chart |
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| SPX 3 minute chart |
Without all the code for "look & feel" the construction of
Vixenator II comes down to this:
def ratio = VIX / SPX;
def sma = Average(ratio, length);
def sd = StDev(ratio, length);
def diff = ratio - sma;
plot zscore = -1 * diff / sd; |
On account of the values yielded by this formula and bearing the statistical concept of "normal distribution" in mind one is
capable of a making a probabilistic statement on the direction of the
indicator and thus of the instrument it is measuring (see
January posting). Moreover, based on
Vixenator II's historical behavior propositions for "long", "short" and "neutral" stances can be taken.:
A "long" position is proposed when zscore >= +1 (sd) or with an upward move of zscore of at least 1 sd into positive territory. "Long" is exited when the indicator starts reading negative values.
A "short" position is proposed when zscore <= -1 (sd) or with a downward move of
zscore of at least (-)1 sd into negative territory. "Short" is exited when
the indicator starts reading positive values.
When not "long" or "short" a "neutral" stance is proposed (indicated by the yellow coloring).
The mentioned "1" sd value is the default trigger level. Adjusting to "0" basically renders the outcome to "stop and reverse" signals. |
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| SPX daily chart |
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| SPX 3 minute chart |
Besides the "long", "short" and "neutral" coloring, the indicator allows for the detection of trend line breaks (see chart above) and divergence detection (not shown).
Feel free to comment or make suggestions and please do consider a donation: also $5 or $10 gifts are by all means a welcome encouragement!
Like always the thinkscript code is available for copy/paste in the comment section. Nobody wants to wait for a sequel for 7 years! Enjoy it now!
