Bullish Market Entry Point for ThinkorSwim

[BenTen]

In case there is a HUGE crash tomorrow, you know where to buy the dip

Plots the ratio between the VIX3m and the VIX to show potential entry points (.8 - .9).

thinkScript Code

# VIX3M/VIX Ratio
# Assembled by BenTen at useThinkScript.com
# Converted from https://www.tradingview.com/script/klHaJXYn-VIX3M-VIX-Ratio/

declare lower;

def U = close("VIX3M");
def D = close("VIX");
def UDL = U / D;

plot ratio = UDL;

plot l1 = 0.8;
plot l2 = 0.9;

l1.SetDefaultColor(GetColor(1));
l2.SetDefaultColor(GetColor(0));

 

[RPrado]

You always develop some very good scripts @BenTen thank you.

 

[BenTen]

@RPrado Thanks for the kind words but I just converted this from TradingView. Didn't really develop it

 

[tomsk]

Rather than monitor the VIX too rigidly, my practice has always been to monitor the front month /VX versus the back month /VX to observe the effects of contango and backwardation. The last time we were in a severe backwardation state was in December 2018. We're at least more than 2 points from any chance of that happening

 

[BenTen]

@tomsk Interestingly, you brought up the term "contango." I learned about it yesterday while looking at this https://www.tradingview.com/script/QmTrrgrp-VIX-VXV-Ratio-Buschi/

Any chance that script relates to what you're talking about?

 

[tomsk]

@BenTen We have been in a contango state essentially for the entire 2019, except for the week of 1.6.2019 and 8.25.2019 when we were mildly in a backwardation state (in regard to /VX). Many people refer to that as the volatility futures had flipped where risk is happening at the present time as compared to risk 60 or even 90 days out.

In your trading view link above I believe they are measuring something very similar but using "cash" products. I prefer to use the futures to give me more insight. I have VIX, VIX3M, as well as VIX9D on my watchlist purely as a reference point but pay more attention to the futures volatility products

Hope this helps

 

[Playstation]

Am I right to say this only applies to the major 3 indices, Nas, SnP, Dow?

 

[tomsk]

@Playstation Nope, only for SPX.

Just think about what the VIX measures - volatility of calls and puts on the S&P 500. Since the VIX is a 30 day measure, that's the timeframe of concern. There are other timeframes as I mentioned earlier. Typically traders look at the VIX on a daily basis. Personally I use the /VX futures rather than the VIX. One looks at the future expectation while the other looks at what action had already transpired.

 

[Playstation]

Okay tried on desktop.
Can work for SPY SPX ES. But only from 4H to Day chart.
Doesn't work on mobile.
If I'm reading correctly, it shows that the SnP is gradually getting to a boiling point that it is primed for the downturn already?

 

[tomsk]

@Playstation Exactly - that's precisely the reason why traders keep an eye on - the market seems "frothy" and the tipping point can happen anytime

 

[tomsk]

@Playstation Indeed - the volatility futures is one measure of market internals. There are other measures like advance decline ratios, TICKS - whether extreme, volumes traded on /ES and I do look at how the bonds are performing as well. The market has been over extended to one side for a long time, and reversion to the mean is something that most traders look for. Hope that helps

 

[JarJar168]

Thanks, really nice indicator. Is there a way to put this in a scanner?

 

[BenTen]

@JarJar168 What are you trying to scan for? If you didn't notice, the indicator provides the same value regardless of which ticker you look at.

 

[tomsk]

@JarJar168 Sounds like you're new to trading. There are a group of ticker symbols that measure the underlying sentiment and health of the financial markets. Collectively these are known as market internals.

Let me give you an analogy. Imagine you are a pilot of a commercial jet airliner. You absolutely need to have instrumentation to tell you the speed and other factors that help you make decisions for the duration of your flight. In a similar fashion market internals gives traders information about the underlying state of the market. You typically do not scan for information but place this in a watchlist and learn how to interpret those numbers.

I found a relatively easy article for beginners to understand market internals. It has easy to understand examples. Please note that there are a lot more that the article does not discuss but this should be sufficient to get you started in understanding the concept.

https://www.traderslog.com/market-internals

 

[Playstation]

@tomsk I can't quite make out the low quality image in traderslog.
$UVOL-$DVOL | $UVOL/Q-$DVOL/Q
$ADVN-$DECN | $ADVN/Q-$DECN/Q
$TRIN | $TRIN/Q
$TICK | TICK/Q

Did my poor eyes got them right?

 

[tomsk]

@Playstation You got all of them right except in the last line. It should be

$TICK | $TICK/Q

All of these should be prefixed by "$".
And in case you didn't know what these symbols meant, I'll save you the trouble
Here you go my friend ...

$UVOL        NYSE Advanced Volume
$UVOL/Q     NASDAQ Advanced Volume
$DVOL        NYSE Declined Volume
$DVOL/Q     NASDAQ Declined Volume

$ADVN        NYSE Advanced Issues
$ADVN/Q     NASDAQ Advanced Issues

$DECN        NYSE Declined Issues
$DECN/Q     NASDAQ Declined Issues

$TICK         NYSE TICK
$TICK/Q     NASDAQ TICK

$TRIN        NYSE TRIN
$TRIN/Q     NASDAQ TRIN

These are a lot more symbols, but these should be enough to get you started

 

[tomsk]

@Playstation The market always comes first, Know those before you look at indicators on individual stocks
Stocks are nothing but pawns on a chess board for market sentiment (bullish/bearish)
If underlying market is bullish, most stocks get bought up, and they get sold down on bearish sessions

 

[tomsk]

@Playstation If you have not already done so, you might consider loading the following study

# TICK and AD Label
# tomsk
# 11.15.2019

input TickSymb = "$TIKSP";
input ADSymb = "$ADSPD";

def TICKS = if !IsNaN(close(TickSymb)) then close(TickSymb) else TICKS[1];
def AD = if !IsNaN(close(ADSymb)) then close(ADSymb) else AD[1];

AddLabel(1, " Tick = " + TICKS, if TICKS < 0 
                                then Color.Pink 
                                else Color.Cyan);
AddLabel(1, " AD = " + AD, if AD < -350 then Color.Pink 
                           else if AD > 350 then Color.Cyan 
                           else if between(AD, -250, 250) then Color.White 
                           else Color.Yellow);

These labels are color coded and tells you if we oscillate from a bullish undertone to a bearish undertone
The tickers in my study are the TICK and Advance/Decline for the S&P 500

 

[Thomas]

My Vix chart,....many goodies: https://tos.mx/j9XXslO

My TICK with goodies. I place this in Flex charts with three futures charts, /YM, /GC, /CL which are configured with ORB and this TICK by itself....1D/1Minute https://tos.mx/jUnBAXG

 

[Thomas]

Shadowtrader shared a chart set up of internals years ago, maybe search YouTube....