The 2 Secrets I Learned About The Stock Market

How the VIX fear index affects small-cap stocks (stocks under $5-$10)

The VIX is a fear index that fluctuates up and down in contrast to where the stock market is trading. The one thing I heard on CNBC a lot was how the vix was this contrarian indicator for market tops and bottoms.  Well hindsight is 20/20 and I wanted to see what else I could find with a little bit of research. The VIX is the square-root of the risk neutral expectation of the S&P 500 variance over the next 30 calendar days.   Here is a link to wikipedia for a further explanation of it. As I thought about it, and have watched stocks for years, I realized something.  If the VIX drops below 20 or 30 this means there is little fear in the market, and when it rises as it did during the market crash of 2008 and 2009 to the 80’s and 90’s then there is an abundant amount of fear.  When people are fearful they are much more careful with their assets. The secret I realized was that, assets or stocks with a high beta (if market moves 1 point these stocks move 2-3 points) tend to fluctuate upwards in powerful trends as the VIX approached the 20’s and 30’s and they also tend to crash and lull as the VIX approches higher fearful numbers. So for stocks that are risky, and usually these are equities that are in the sub $10 price range, these have huge volatile moves up or down in negative correlation with the VIX index.  Now there is a strategy that everyone trades these with but that is not to be put in this article. Why Financial Communities should be destroyed. I have also learned that if I could tell anyone from a mountaintop about anything, it would be to never listen to other people when they start talking about stocks or currencies or any sort of security.  The reason for this is, by the time they are talking about it, that security has moved significantly out of a good buy/sell range.   Financial communities, unless in real-time and discussed with a cautiously optimistic eye, should be destroyed.  Think about CNBC with me for a minute.  If you had 12 hours per day to fill for a TV show, you would put some valuable content on there and the rest would be nonsense to fill the airwaves. Twitter Financial Communities are the best resources to learn about what stocks are moving, and trading.  Traders tweet in hope to get more followers to watch their tweets and potentially sell you something on their website.  However the free, almost real-time information on twitter is priceless to the learning amateur trader.  Visit www.twitter.com and search stock market trading.  Or see this article about the top 5 twitter traders to follow. I have two more secrets to release soon. Stay Tuned.   For more information please visit www.csquaredtrading.com