Using Technical Indicators on the VIX Chart
India VIX reflects market volatility, but its index values form a price-like series. This lets traders apply indicators on a VIX chart to track volatility trends rather than price direction.
Common tools include:
- RSI: Flags overbought/oversold volatility; above 70 shows panic, below 30 shows complacency.
- EMA: Short- vs long-term averages reveal if expected volatility is rising or cooling.
- Bollinger Bands: Highlight when VIX moves far from its mean, hinting at mean reversion.
- MACD / MA Crossovers: Confirm upward or downward volatility trends.
How to apply these in Trading Decisions
- Option Selling in High VIX
When India VIX is elevated and EMA or RSI shows it topping out, option premiums are expensive. Traders can deploy credit spreads, iron condors, or short straddles to collect rich premiums if they expect volatility to ease. - Option Buying in Low VIX
When VIX is low and Bollinger Bands contract, buying long straddles or strangles can profit from an anticipated breakout or sudden volatility spike. - VIX–NIFTY Divergence
If NIFTY rises while VIX and its EMA also rise, it signals hidden market stress. Tighten stops or add protective puts. - Indicator-Confirmed Entries
Combine India VIX RSI extremes with NIFTY price support/resistance. For example, VIX RSI above 70 while NIFTY RSI is near 30 can confirm a potential market bottom.