The TVIX stock is an exchange-traded note that is a 2X leveraged fund. This post will be how to trade the TVIX stock for July 2019 and avoid the traps. Please be warned it is NOT a long term trade. What it does is follow the short term volatility of the Standard & Poor’s 500 (S&P 500). The TVIX stock acts similarly to a stock.
If the S&P 500 is going up then the TVIX stock is going down. You can buy or short the shares just like a regular stock. There are other stocks that track oil and other commodities that are similar to this. So this stock is a good indicator of what to expect for the S&P 500. They pretty much trade hand in hand so if the TVIX is going up then the S&P 500 should be going down.
If you would like to read an extremely in-depth analysis of how the TVIX stock works then check out this post: https://sixfigureinvesting.com/2015/10/how-does-tvix-work/. They explain it very well if you are looking for the background to it.
The goal of this post is to show you the analysis I use for my setups and how they interact with the TVIX. The stock is not something I trade. In fact, as of right now I do not trade any 2X or more leveraged stocks. Pretty much all of them have a steep fee and should only be used for intra-day trading. I’ll talk about further in this post a mistake I made when I first started trading a 2X leveraged stock since I didn’t realize there was a fee involved and you should only trade it using a very short term time frame.
What You Need to Avoid With the TVIX Stock
As mentioned above, the TVIX stock is NOT a long term trade. There are fees involved that will eat away at any profits you have on a daily basis. It is best traded in a very short time frame. Here is an over from Investopedia that describes what I am talking about how the TVIX stock should be used. I quoted part of it below which more accurately describes one of the main reasons to even think about trading it. https://www.investopedia.com/articles/investing/041315/overview-velocityshares-tvix.asp
Timing is Everything
TVIX tracks two times the daily performance of the Standard & Poor’s 500 VIX Short-Term Futures Index. It is enticing because it has the potential to give you massive returns in a very short period of time, but it could be a trap.
The only way to win playing TVIX is by having impeccable timing. Unfortunately, the odds of having impeccable timing on a consistent basis are miniscule. This has everything to do with a massive expense ratio of 1.65%. If you were to invest in TVIX long term, you would be a guaranteed loser. Since its 2010 debut, TVIX has depreciated 99.97%.
Over the past three years, it has depreciated 88.17%. It has also declined 77.92% over the past year and 49.28% year-to-date.
So as you can see the TVIX stock can look extremely enticing with the promise of large returns in a short amount of time. But in reality, you have to time a move almost perfectly to capitalize on the big gains. For me, this is not how I trade so it won’t work for me. If that is how you trade where you can time big moves then the TVIX stock is for you! But I suspect most people struggle to trade that way so this is a leveraged stock I would proceed very cautiously with if you are going to get in and out of the trade.
Analysis of the Charts and Setups
Daily Chart
In the daily chart, we are currently in a 123-161 setup. When the price hit $15.27 at the 123.6% Fibonacci extension level (the orange line) then that initiated the trade. The current exit is at the top of the yellow box at around $18.60.
But if the price doesn’t hit that exit and goes down and hits the 1.618% extension level then we would enter there as well and move the exits to the top of the green box around $15.20.
Finally, if the price doesn’t hit that exit but goes down and hits the 200% extension (the blue line) then we move all exits to the top of the teal box around $9.75. This would be the final time we move the exits. Even if the price continues to move lower the exit doesn’t move. You can get in if the price continues to move lower but you do not move the exit again.
If at anytime an exit is hit then the move is over. If you still have entry levels waiting to get fulfilled then you need to take them off because the setup is complete.
The S&P 500 is getting closer to breaking down. This is evidenced by the 123-161 setup being well underway in the TVIX stock. Whether or not it will happen at one of the 3 levels listed above is yet to be seen. But what this setup shows us is that sooner rather than later the S&P 500 will have some type of retracement.
Whether it is the “big one” as some people have said or just a minor correction in a bigger uptrend is yet to be seen. But it is on the horizon. So prepare yourself because based upon the setup above we will have some type of correction, I just don’t know how big it will be.
15-Minute Chart
In the 15-minute chart, we are currently in another 123-161 long setup. When the price hit the orange line at $14.38 then that initiated the trade setup. The exit is the top of the teal box at around $14.76.
If the price continues to move lower and hits the 1.618 then the exit moves to the top of the green box around $14.35. But if the price continues to move lower without hitting those exits and hits the 200% Fibonacci extension level then all exits move to the top of the yellow box. That will be around $13.70.
If the TVIX stock continues to move lower than the bottom of the yellow box then that is fine. The exit for it does not move anymore. So even if the price moves lower the final exit will be at $13.70.
But if at anytime the price hits an exit then the move is over and it is time to look for a new setup. Even if you have an unfulfilled entry at one of those spots then take it off. The move is complete and time to look for another one.
So for this short term trade, we are looking at the TVIX as being bullish which would be bearish for the S&P 500. For the next day or two, I would look for the S&P 500 to go down until this setup is complete.
Video Review of the Charts
Conclusion for How to Trade the TVIX Stock
Please remember the TVIX stock IS NOT long term trade. It is meant to be short term only. In fact, I would only advise day trading with it. Years ago a buddy told me about another leveraged stock that tracked the price of oil and I bought in not realizing the bank who issues the leveraged stock collects a daily investor fee. It slowly ate away at any profits I had made over time. When I finally sold I had lost money due to that. Another lesson learned the hard way.
So do not do my mistake! If you do trade the TVIX stock then only do so for extremely short time frames. My recommendation is for intra-day trading.
Through my ups and downs, the one constant in how I improved my trading was through meditating. I stopped trying to copy other people and started creating my own trading style. It still took over 6 months from when I started meditating to when I found the first trade setup that worked for me but it was totally worth it.
Now, I meditate daily and it has improved every area of my life. Your trading psychology is a reflection of who you are. You cannot separate your trading brain from your “normal” brain. That is another reason why I highly recommend meditating. Even if you don’t want to use it for trading it will help in other areas of your life.
If you would like to see the exact steps I take in creating my own trading setups through meditation then check out this article I wrote: https://evancarthey.com/how-to-become-a-profitable-trader-using-meditation/
If you would like further reading to the meditation and psychological books that have had the most influence on my life then read this post: https://evancarthey.com/best-meditation-books-for-traders/
Finally, if you are just starting out in the world of trading then read my beginner’s guide. It has the information I wish people had told me before I started putting my money on the line in the world of trading: https://evancarthey.com/a-beginners-guide-to-day-trading/
My goal is to assist you in becoming the most profitable trader you can become. I seek to destroy poverty and if I can help you in your trading career in any way please let me know.
Take care,
Evan
