Synthetic VIX Indicator

The Synthetic VIX indicator measures market volatility. The volatility index is calculated by attentively monitoring price action fluctuations. The index value is used as a scale to determine the degree of price volatility. This indicator was created to track the volatility of the S&P500. The Synthetic VIX can now be used to evaluate forex currency pairs and other forms of trading assets. This is a nice technical indicator for newcomers. At the same time, it is suitable for experienced traders.

What is the Synthetic VIX Indicator?

The Synthetic VIX Indicator is a volatility indicator. Its name is an abbreviation for the Synthetic Volatility Index indicator, and it aids traders in their technical analysis and trade planning in the context of favorable and unfavorable market conditions. The Synthetic VIX Indicator is suitable for all timeframes and currency pairs. It appears in a separate window right below the main trading chart. The input tab allows you to change the default parameters directly. Feel free to play around with the settings and parameters to suit your needs.

The indicator assesses market volatility by measuring changes in historical pricing data. It tracks variations in market volatility using a 20-period moving average. The indicator finds the highest closing price of the previous 20 bars and subtracts it from the current bar’s low. The result is then divided by the highest closing price in the previous 20 periods. To scale the indicator readings, you could multiply the result by 100 (if necessary).

Setting up the Synthetic VIX Indicator
Setting up the Synthetic VIX Indicator

Synthetic VIX Strategy

The Synthetic VIX does not provide a buy or sell signal. Based on the calculation of its price index, it depicts the current condition of market volatility. The value of the index moves in the opposite direction of the price fluctuation. When the market price reaches a specific threshold, we use it to scan trader sentiment. When the VIX falls below 1.0, the price usually rises. When the VIX rises from its low, the price intends to move downward (0.0).

This indicator may be more effective in sideways or confusing market situations. For example, suppose the price varies in a small range for a while before breaking out. In such cases, the indicator can help identify the likelihood and intensity of a breakout scenario.

How Does the Synthetic VIX Indicator Measure Market Volatility?

Traders should not confuse the Synthetic VIX Indicator with a buy-sell indicator. The price index is used to calculate the indicator, which is used to analyze market volatility. However, it can be used with other technical trading techniques to provide more important market information.

The VIX has a value between 1.0 and 0.0, with 1.0 being the highest. When you use the indicator, you will notice that the volatility index value reacts to price change. For example, if the market is in a positive trend, the VIX begins to fall from 1.0. On the other hand, a bearish market movement causes the VIX to rise from 0.0. This indicator is useful for novices because market volatility might be perplexing at first. It facilitates their learning by offering straightforward answers about market volatility. In addition, experienced traders can employ this indication in volatile market conditions. When people become trapped or confused by the market’s behavior, this indicator can assist them in determining a solution to grasp the market trend.

Using the Synthetic VIX Indicator to Measure Market Volatility
Using the Synthetic VIX Indicator to Measure Market Volatility

Synthetic VIX Pros & Cons

Pros

  • Synthetic VIX Indicator aids in determining the price volatility index in real-time.
  • Traders can also use the index value to predict price breakouts and bouncebacks.
  • This indicator also aids in determining market sentiment as well as the sentiment of other traders.

Cons

  • The synthetic VIX does not provide a buy/sell signal. Based on the calculation of its price index, it depicts the current condition of market volatility.
  • Using this indicator may require some knowledge of price action in order to benefit appropriately.

Conclusion

Synthetic VIX is a technical analysis tool for traders who base their trading decisions on market volatility levels. Apart from equities, this indicator is also useful for Forex currency pairs and other online trading assets. Furthermore, its ease of usage is a benefit for beginning technical analyzers and price action traders.

Market volatility has a major impact on a market. Hence, the employment of an indicator to assist traders in determining market volatility can be advantageous. The Synthetic VIX Indicator assists traders in resolving this issue. Many traders favor it because of its basic approach and flexibility to practically all sorts of trading assets, including Forex. This indicator can be used by both rookie and experienced traders. However, prior knowledge of market volatility is required in order to use this signal effectively. Traders should also be aware that the Synthetic VIX Indicator is merely a tool for calculating market volatility and cannot be utilized to identify buying or selling recommendations.