VXN Distance

Its job in a momentum trade

It times the volatility push. The bars shrinking after a spike are often the first sign that a momentum short has done its work.

What it measures

How far VXN is from its recent average. The level of VXN changes slowly from day to day. This oscillator removes the level and leaves the short-term push.

How it is computed

1. VXN minus its eleven-bar exponential moving average, in volatility points.
2. Red bars are above the average (volatility rising) and green bars are below it (volatility falling).
3. The bright shade means the gap is still widening and the dark shade means it is narrowing.

How to read it

• A run of growing red bars is volatility being bid. That goes with selling in the index.
• A run of green bars is volatility being sold. That goes with a rising or calming index.
• The turn from bright to dark is the first sign that a volatility push has peaked.

How to trade it

• During a selloff, hold shorts while the red bars are bright. The first dark red bars after a spike are where selloffs often pause.
• A long is better supported while the bars are green.
• A red burst with no matching fall in price is worth attention. Options traders may be reacting to something the price has not shown yet.

What it cannot tell you

• An average follows the series, so after a large jump the distance shrinks even if VXN stays high.
• These reads have not been tested here as trading rules.

Read it with

• VXN: The Nasdaq-100 volatility index through the session: what options traders are paying for protection.