The best strategy for trading VIX 75 requires a deep understanding of volatility, technical analysis, and risk management. VIX 75, otherwise known as the Volatility Index 75, is a highly volatile synthetic index that measures the volatility of the market. 

It is popular among traders who are looking for short-term profits from large price movements. However, due to the volatility of the same, its trading requires a properly thought-out approach. 

In this guide, we explore the best strategy to trade VIX 75, outlining key methods, tools, and techniques that can be used to have successful outcomes.

Understanding VIX 75

VIX 75 is an artificially developed index of volatility in financial markets. The fast-paced and usually large changes in price make trading with this volatility index highly rewarding and hugely risky, especially for newbies. A strategy should match the special characteristics of VIX 75 for successful trading in it, though recognizing the right opportunities and a risk management system are indeed required.

Key Characteristics of VIX 75

Before diving into the strategy, it is important to understand what makes VIX 75 so unique:

• High Volatility: The index is known for extreme price swings. The price action can make very large moves in minutes; hence, the product can be used with scalping and day trading strategies.
• No Central Market: VIX 75 is a synthetic index because it is not pegged to a specific asset but rather to market volatility. This feature makes it less predictable but more dynamic at the same time.
• Extended Hours Trading: VIX 75 is available for trading 24/7, which creates more opportunities for traders to catch price moves at any time.

These characteristics make VIX 75 a high-risk, high-reward asset, which is why it’s crucial to have a clear strategy in place.

The Best Strategy for Trading VIX 75

There is no single strategy that can promise success with VIX 75 trading, but a judicious mixture of technical analysis, risk management, and market knowledge will go a long way in tilting the probability of success in your favor. The best approach is broken down into key steps.

1. Scalping Strategy

One of the most effective strategies for trading VIX 75 is scalping. Given that the volatility of the asset is really high, scalping allows traders to profit from small, quick price movements. The strategy involves entering and exiting trades within a very short time frame, often within minutes.

• Timeframes: The best time frames for scalping VIX 75 are the 1-minute and 5-minute charts. These timeframes allow you to capture small price fluctuations that occur frequently.

Indicators for Scalping: To complement your scalping strategy, indicators such as the 

• Exponential Moving Average (EMA), Relative Strength Index (RSI), and Bollinger Bands can be used.
• EMA allows for the identification of short-term trends.
• RSI helps in identifying overbought or oversold conditions.
• Bollinger Bands give an idea of market volatility and price levels that have the highest chance of reversal.

2. Trend Following Strategy

Though scalping can be implemented effectively in short-term price movements, if VIX 75 develops a strong directional bias, then following a trend is more viable. In such cases, correctly identifying the trend and trading in its direction can result in significant profit.

• Determine the Market Trend: Use indicators, such as Moving Averages the 50-period and 200-period MA-to establish if the market is in an uptrend or downtrend. If prices are above the moving average, this could suggest an uptrend, whereas if prices are below, the trend may be downwards.
• Confirm the Trend: After the trend is established, you could use tools such as the MACD (Moving Average Convergence Divergence) or ADX (Average Directional Index) to confirm the strength of the trend.

By following the trend, you align yourself with the momentum of the market, which will make it easier to capitalize on significant price movements.

3. Breakout Strategy

Another popular strategy for trading VIX 75 is the Breakout Strategy. The breakout usually happens when the price goes beyond a key support or resistance level, which means that the market is likely to continue in that direction.

• Levels of Resistance and Support: The levels could be identified by past observation of resistance and support, which often act as an obstacle for the price to overcome. When the price breaks above resistance or below support, it signals a potential breakout.
• Volume Confirmation: The appearance of higher-than-usual volume along with a breakout lends validity to the breakout. In this way, the market shows itself particularly responsive to the breakout level, which can thus have better chances of turning in a further move.

Breakouts can be super profitable, but one needs to wait for confirmation to avoid false breakouts. The best way is to wait for a few minutes after the price has stayed above the breakout level before entering the trade.

4. Use Price Action Trading

Price action trading involves analyzing the movement of the price itself rather than relying heavily on technical indicators. This strategy is ideal for traders who want to focus on the raw behavior of the market.

• Candlestick Patterns: Price action traders often rely on candlestick patterns to make decisions. Common patterns like Engulfing, Pin Bars, and Doji can provide valuable insights into market sentiment and potential reversals.
• Support and Resistance: Price action traders also pay close attention to support and resistance levels. Price often reacts predictably when it reaches these levels, making them useful for determining entry and exit points.

Price action trading is particularly effective in volatile markets like VIX 75 because it allows you to read the market’s emotional responses to price movements.

5. Risk Management and Position Sizing

Trading the VIX 75 demands a very strict risk management strategy because of its extreme volatility. While the potential for profit may be very high, the potential for great loss is also possible.

• Stop Loss and Take Profit: Always use a stop loss to limit your potential losses. Setting a stop loss at a reasonable distance away from your entry point ensures you do not lose more than a predetermined amount in the case of a trade. Similarly, setting a target of take profit will help lock in the profits before the market may change.
• Position Sizing: Position sizing is very important to control risk. You should risk only a small percentage of your account balance on any one trade. It could be 1 or 2%. So that you can absorb a large number of losses before depleting your capital.

Conclusion

In the end, the best strategy in trading VIX 75 is a combination of technical analysis, risk management, and deep understanding of the volatility that the asset has. Whether you have a scalping strategy, trend following, breakout strategy, or price action trading, it all narrows down to being disciplined, using the right indicators, and managing your risk. With these strategies in place, you can navigate through the volatile waters of VIX 75 and reach your maximum trading potential.

By following the right strategy, constantly refining your techniques, and staying informed about the market conditions, you have a better chance of achieving success while trading VIX 75.

Frequently Asked Questions (FAQs) 

1. Why is VIX 75 so volatile?

• The VIX 75 is designed to capture the large swings in price, hence it experiences extreme volatility. The nature of the synthetic index-not anchored to any underlying asset, only reflecting the sentiment of the market and its volatility-causes such extreme volatility. Thus, it may show dramatic movements even within small frames of time, which turns it into a high-risk and high-reward trading instrument.

2. How can I manage risk when trading VIX 75?

• Risk Management Risk management is highly crucial when trading the VIX 75 because of its volatility. Here are some tips on how to effectively manage your risk: 
• Set Stop Loss: Always use a stop-loss order to limit possible losses. Determine your stop loss level based on recent price action or a percentage of your account balance.
• Position Sizing: Never risk more than 1-2% of your trading capital on a single trade. This ensures that a series of losing trades won’t wipe out your account.
• Take Profit Targets: Set take-profit levels to lock in profits before the market reverses, preventing you from giving back gains.

3. Can I trade VIX 75 24/7?

• Yes, VIX 75 can be traded 24/7, and that provides room for every trader to enter or exit any position at any given time. However, you must remember that its liquidity is different at different times of the day, so you may face some slippage at off-peak hours.

4. What is the minimum deposit that a trader needs to trade VIX 75?

• The minimum deposit required for trading VIX 75 varies depending on the broker selected. Some brokers provide accounts using as little as $50 or $100 to start trading, others may require higher deposits for trading. It’s absolutely important to choose a broker that offers appropriate leverage together with margin requirements for trading VIX 75.

5. What are the best trading hours for VIX 75?

• Although the VIX 75 is tradable 24/7, the best hours of trading are during higher market activity, like during the opening of European and US markets, starting from 8:00 AM to 12:00 PM GMT. In this time frame, more volume and volatility can be seen, and this is why traders have a better chance of getting good profits.

6. Can I trade VIX 75 using automated trading systems?

• Well, yes, it is possible to trade VIX 75 on automated trading systems. Expert Advisors, for example, may be used on either MetaTrader 4 or MetaTrader 5 platforms, which will automatically place trades upon meeting pre-programmed criteria. This is particularly useful for traders who would like to take advantage of the high volatility of VIX 75 without being glued to the screen. However, it’s important to test and optimize your automated strategies thoroughly before trading live.