How to use the 3 day rule

BY ANDREW GIOVINAZZI

April 3, 2024

Yo Pit Crazies,

Look for our UVXY/UVIX seminar coming up. Mark managed to bag 100% last split in the Trading Desk and with VIX rising now the opportunity is even better.

Right now we are two days into a sell off in the SPDR S&P 500 Trust (Ticker: SPY). For me, I want to see if the stock can hold a trend for 3 days. That would mean 3 consecutive days of closing red, and the start of a new trend in SPY. Why 3 days?

That is what I learned from old floor guys when I started trading. Some of them migrated from the PSE in the early 80s to trade options but were really stock traders. Good stock traders.

Right now it is two days. Open market indicates it could be 3 days for down SPY.

SPY 5 Day chart with 1 min candles

After doing this for 35 years, now I am an old guy.

I added my own wrinkle.

Here it is

Mind the VIX

If VIX is anything, it is demand for options. VIX is the 30 day forward volatility index for the implied volatility in the S&P 500 options.

VIX climbing is a sign traders expect more expansive movement. I also like to see it growing steadily during the day. Note the graph below, SPY crashed early, VIX spiked, and VIX sold off as SPY rallied. Not the stuff of a big selloff.

VIX day chart with 1 min candles

But today SPY is down with VIX up. If this trend continues and closes like this, I will be ready for more selling in SPY. VIX moving in the opposite direction of SPY, is a strong affirmation of the SPY trend. VIX continually building in a direction is an even stronger affirmation of the SPY trend.

If it is volatility you want and learning to trade the vol products, come join the Trading Desk and get the UVIX/UVXY special and learn something in the process.