Vix FIX / StochRSI Strategy

The Vix FIX / StochRSI Strategy indicator automates a systematic mean-reversion trading approach by combining the Williams Vix Fix volatility measure with Stochastic RSI filters to identify market bottoms and trend exhaustion.

Usage

The Usage section describes how the script can be used to identify entry and exit points based on volatility and momentum.

Entry Conditions

The strategy utilizes two primary entry signals derived from the Williams Vix Fix:

• Filtered Entry: Triggers when volatility (WVF) drops below the upper Bollinger Band or the specified percentile high after having been above it, combined with bullish price action (current low higher than previous low and current close higher than previous high).
• Aggressive Entry: Triggers when the volatility remains elevated, but bullish price action (current close higher than previous close and open) suggests a reversal is beginning.

Both entries are further filtered by "Strength" and "Lookback" settings, ensuring the current close is higher than price levels from a specific number of bars ago. The strategy allows for pyramiding, meaning multiple entries can be taken if consecutive signals appear.

Exit Conditions

The strategy manages risk by exiting positions based on momentum exhaustion. A "Long" position is closed when the Stochastic %K line crosses above the %D line while in overbought territory (typically above 80).

Details

The strategy is built upon the concepts introduced by Chris Moody’s Williams Vix Fix, which acts as a "synthetic" VIX. It calculates the percentage drop from the highest high over a lookback period to represent market fear and potential bottoms.

The implementation utilizes:

• Bollinger Bands on WVF: To identify statistically significant volatility spikes.
• Percentile Highs: To determine when the Vix Fix has reached extreme historical levels.
• Stochastic RSI: To provide a refined exit mechanism, capturing the moment bullish momentum begins to roll over after a recovery.
• Price Action Filters: To ensure that volatility peaks are met with actual upward price movement before a trade is initiated.

Settings

Stochastic & RSI Settings

• Lookback length of Stochastic: The period used to calculate the Stochastic oscillator.
• Stochastic overbought condition: The threshold (e.g., 80) where the Stochastic is considered overbought for exits.
• Stochastic oversold condition: The threshold (e.g., 20) for the lower bound of the oscillator.
• Smoothing (K & D): Parameters for smoothing the Stochastic lines to reduce noise.
• Lookback length of RSI: The period used for the underlying RSI calculation.
• RSI Source: The price input (defaulting to Close) used for RSI calculations.

Vix Fix Settings

• LookBack Period Standard Deviation High: The period used to find the highest price for the WVF calculation.
• Bollinger Band Length: The moving average period for the WVF bands.
• Bollinger Band Standard Deviation Up: The multiplier for the upper volatility band.
• Look Back Period Percentile High: The lookback period used to calculate the highest percentile level.
• Highest Percentile: The percentage threshold (e.g., 0.85) used to define extreme volatility.

Entry Filtering

• Long-Term/Medium-Term Look Back: Comparison periods to ensure the current price is relatively low compared to historical data.
• Entry Price Action Strength: The number of bars back used to confirm the current close is trending upward.

FAQ

How does the Vix Fix help find market bottoms?

The Vix Fix measures how far the current low is from the highest high over a specific period. Extreme spikes in this value indicate significant "fear" and price exhaustion, which often coincide with market bottoms.

What is the difference between Filtered and Aggressive entries?

Filtered entries wait for the Vix Fix volatility to actually start declining from its peak, whereas Aggressive entries trigger while volatility is still high, provided the immediate price action shows bullish characteristics.

How can I access the Vix FIX / StochRSI Strategy?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.