Making money in the stock market isn’t always easy. Here is a simple technique that I use to increase my chances. The volatility index “VIX” is a measure of how nervous investors are. The VIX moves in opposite directions from the stock market for the most part.
In the 5 year graph below we compare the VIX (blue) and the stock market index (red.) See how they usually trend in opposite directions?
In the past the VIX rarely goes higher than the 40 point mark. And when it does, it’s usually short lived. Today VIX jumped to 41.35, and the stock market dropped to 1129.56. I consider this to be a buying opportunity. My technique for swing trading is to buy increasingly more stocks as the VIX grows past the 40 mark, and sell when it drops back below 30.
So today, 09/22/11, I bought 60 shares of SNC Lavalin (SNC.TO) at $42.42. and 75 shares of Halliburton Co (HAL.N) at $33.10.
Total bought = $5024.70
All this money is borrowed from my bank at 5% interest rate. I’m using leverage because I don’t have any spare cash right now.
My exit strategy? I will sell both stocks when either the VIX drops to 30, or I can make a $1000 profit by selling both. If you’re not comfortable choosing your own stocks, just buy an ETF that tracks the index like (VTI.N) for example, the principle is the same.
I will follow up this post with another entry when I sell my holdings, hopefully soon. Or in the unlikely chance the VIX moves even higher to 50, I will be buying more stocks.