This is what traders do late at night...experiment with various indicators and instruments in hopes of finding an "edge". A lot of traders use the TICK and VIX as market breadth indicators. So I plotted the TICK, VIX and ES on a 1-min chart and tried to find some patterns. What I observed was that one could take trades based on divergence on the TICK and price, in relation to the trend of the VIX. Now, this isn't some earth shattering observation; quite simple actually, but I wanted throw it up on the blog and get some feedback, so here goes.
The top 3 lines are 3 moving averages (exponential, weighted and triangular) of the $TICK.
VIX is in the middle
ES candle-stick chart at the bottom
At 9:20 central time, ES puts in a double-bottom in the 893-894 area. At the same time a lower high is made on the VIX and the TICK also appears to be bottoming out. Take a long at the close of 9:25 at 895.75, with a 2.50 point stop-loss at 1 tick below prior low of 893.50. Exit the trade when VIX breaks its down trend and/or TICK shows signs of topping out. For this example, I chose an exit at 10:11 AM central, at 901.75 for +6.00 points. In reality, I may have exited sooner at 3 points, but for educational/example purposes, the VIX didn't break the down-trend till 10:11 AM and the 900-901 area would have been a good exit.
Around 10:24 AM, we observe that the VIX has put in a higher low, and the TICK is showing negative divergence so we start to look for shorts. I chose the short entry at 10:26 AM at 900.75 with a 3.25 point stop-loss at 1 tick above prior high of 903.75. Same exit criteria is used; we look for topping action in the VIX and a reversal to the upside in the TICK. Exit is taken at 10:41 AM, at 898.00 for +2.75 points.
I realize these are just two examples, and trading in hindsight is always a piece of cake. But this may be something worth monitoring over the next few days to see if/how it works in real-time.