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We Should Watch the VIX, When Trading

When I'm trading, there's one little number tucked away in cell B1 of my trusty trading sheets that I check religiously—the VIX, or as Wall Street fondly calls it, the "fear gauge." Honestly, I've considered giving it a more personal nickname like "Mr. Doom" or "Captain Anxiety," but let's stick with VIX for now.

For the uninitiated, the VIX (Cboe Volatility Index) measures the market's expected volatility based on S&P 500 index options. Think of it as the market's stress meter—when it spikes, it's like your heart rate after opening your brokerage account on a bad market day.

Historically, this little gauge has seen extremes that'll make your head spin. Take October 24, 2008, for example, when the VIX hit an intraday record high of 89.53 during the global financial crisis. That wasn’t just fear—that was investors collectively screaming and running in circles.

On the flip side, November 24, 2017, saw the VIX drop to its calmest ever at 8.56. That’s the market equivalent of lounging by the pool with a cool drink and not a single worry in the world.

Personally, I've noticed that when the VIX starts ticking upwards, my "swing trading senses" kick in, cautioning me that stocks might soon be headed downhill. If I ever decide to dabble in day trading—aside from needing a stronger cup of coffee—I'd likely avoid buying when the VIX is rising. Why? Because in my experience, an ascending VIX often signals stocks are about to pull a "reverse rocket," plunging back down to Earth.

This April provided yet another rollercoaster ride, with the VIX rocketing to 52.33 amid fresh tariff drama, then dropping 36%—its biggest single-day plunge—when the tariffs paused. Watching the VIX lately has felt a lot like watching my dog chase squirrels—high energy, unpredictable, and occasionally hilarious.

While the VIX itself isn’t tradable, investors can use products linked to its movements (though they're notoriously tricky and risky). So, next time you're plotting your trades, give the ol' VIX a glance. It might just save you from buying at the top—or at least provide some entertainment while you wait for the market’s next move.

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