I came across this article discussing how the VIX Flip Indicator tracks the fear of investors. It seems to be an interesting tool, which I would like to investigate. The calculation of this indicator is not communicated in the article. Can you refer me toward its calculation? No good results from Google.
This indicator seems to be similar to William's Vix Fix which is also known as Synthetic Vix.
On plotting the values of Vix Fix, the monthly chart of the S&P 500 looks similar to the chart given in the link shared by you.
Formula: VIX Fix = (Highest (Close,22) – Low) / (Highest (Close,22)) * 100
I read an article on this that came out in 2018. The author of the article claimed to create the VIX flip indicator and gave the formula in the article.
See following excerpt:
...The calculation is simple. It compares the latest low to recent closing prices:
- Find the highest closing price in the last month. Let’s call that value X.
- Subtract the value of today’s low from X. Let’s call that difference Y.
- Divide Y by X. We can call that Z.
- Multiply Z by 100 to make it a percentage.
FIXING THE PROBLEMS WITH VIX There are two parts to the VIX Flip, each addressing a different problem with VIX. In the chart above, the indicator is the solid blue line. You can calculate this line for any stock, ETF or anything that’s traded. That fixes the problem that VIX applies solely to the S&P 500. The dashed line in the chart is a moving average (MA) of the indicator. By adding an MA to the indicator, we can spot when emotions change. When the indicator moves above its MA, fear is rising. That’s time to sell. If fear is falling, the indicator drops below the MA. That’s a buy signal. Flips in the indicator provide the trading signals. The MA corrects for the problem that there is no way to know when VIX is showing extremes in fear.
Acknowledging that this is a resolved post and aged, I just wanted to flag the correctness of the formula provided here. After taking a course with Michael Carr he specifically covered the VIX flip as a trading strategy. The formula outlined by a previous poster (Williams VIX fix) is the exact formula Michael provides.
(Highest (Close, 22) - Low) / (Highest (Close, 22)) * 100
Highest (Close, 22) = highest close in last 22 periods Low = current low