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Don Kaufman here. |
Let me tell you something about reading the market that goes way beyond just watching prices go up and down.
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Today's session perfectly illustrates what I'm talking about, and it's a lesson you can use any time you're trading. |
Understanding Mixed Market Signals
When the market gives you mixed signals, that's actually a signal itself. Let me break this down in plain English. |
What Is Correlation and Why Does It Matter? 🎯
Correlation means how different stocks or assets move together. Think of it like a dance - when the market is truly scared, everything moves in sync. |
Stocks go down together, bonds go up (because people are buying them for safety), and something we call the VIX (the market's fear measurement) shoots higher. |
It's like watching everyone at a party suddenly rush to leave at the same time. |
The "False Fear" Market
But sometimes, you get what I call a "false fear" market. The headlines might look scary, but the market's behavior tells a different story. |
Here's a real example: imagine the overall market is down, but major technology stocks like Nvidia are actually up. This disconnect tells us something isn't quite right with the fear narrative. |
Understanding Volume - The Market's Pulse
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Volume is simply how many shares are being traded. Think of it like traffic on a highway - when something important is happening, you see lots of cars (or in our case, trades). |
High volume means the big institutional traders are actively involved, and when they're moving money around, you need to pay attention. |
The VIX - Your Market Fear Gauge ⚠️ |
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The VIX is like a thermometer for market fear. When it's high, it means traders are expecting big price swings.
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Even if prices look calm right now, an elevated VIX is warning you that storms might be coming. It's one of the most important tools we have for measuring market risk. |
Making Money from Market Signals: A Practical Guide
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Understanding Correlation in Action
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Let's say the S&P 500 is down 1% today. Here's how to use correlation to make money: |
If most stocks are down 1%, that's normal correlation - nothing special to trade If tech stocks like Nvidia are up while everything else is down, that's telling us something important: institutional money is actively buying tech despite market fears Trading opportunity: In this case, you might want to focus on those strong tech stocks that are bucking the trend, as they're likely to bounce back first when the market recovers
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Using Volume to Spot Opportunities
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Normal volume for the S&P 500 ETF (SPY) is about 46.4 million shares per day. Here's how to profit from volume spikes: |
If volume is double normal levels, big money is making big moves Trading opportunity: When you see huge volume and prices dropping, wait for the volume to slow down before buying - that's often the bottom Example: If a stock normally trades 1 million shares but suddenly trades 5 million, watch for the price to stabilize before entering. This high volume often marks the end of a move, not the beginning
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Making Money from the VIX
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The VIX normally sits between 15-20. |
Here's how to use it: |
When VIX jumps above 25: Market expects big moves coming Trading opportunity: Consider buying protective puts on your long positions When VIX spikes above 30: Fear is extreme Trading opportunity: Start looking for stocks to buy, because fear spikes often mark good entry points Real example: When VIX hits 30+ and good stocks are down big, consider selling put spreads 30-45 days out - you're getting paid more for the same trade due to higher fear levels
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Putting It All Together: A Real Trading Plan |
Here's how these three indicators work together to signal trading opportunities:
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Perfect Setup Example: |
VIX spikes above 30 (extreme fear) Volume is double normal levels (big money moving) But strong stocks like Nvidia barely down or even up (positive correlation divergence) Action plan: Buy calls or stock in the strong names showing resistance to the selloff
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Warning Setup Example: |
VIX rising but not extreme Volume normal or below normal Stocks moving randomly (some up, some down with no clear pattern) Action plan: Stay out or reduce position sizes until clarity returns
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Remember, these indicators work best together. One signal alone isn't enough - you want at least two of the three lining up before making a move. |
And most importantly, when these signals aren't clear, keeping your money safe by staying out of the market is often the best trade you can make. |
The Real Edge 📈 |
The real money isn't made trying to predict market moves - it's made by reading these signals and responding to what's actually happening. When correlation breaks down but volume is high, something big is happening.
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When the VIX spikes but strong stocks hold up, that's often your best buying opportunity. The key is patience - wait for these signals to align before putting your money to work. |
Want to See These Signals in Real-Time? 💪 |
Look, I've spent over 20 years training thousands of traders and building thinkorswim's options education. |
During that time, I've refined these signals into a systematic approach that spots institutional money moves before they happen. |
Just last week, while markets were in turmoil, my inner circle used these exact signals to capture a 445% return on a single SPX butterfly trade. |
Here's the thing - these setups appear regularly if you know what to look for. The correlation-volume-VIX relationship I just explained? |
That's just the tip of the iceberg. |
For less than the cost of a coffee ($7), you can join me this week as I break down: |
Real-time analysis of these three critical signals Exact entry and exit points for upcoming trades Live institutional money flow tracking Complete breakdown of my highest-conviction setups
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Don't wait until after the big move happens. Learn to spot these signals yourself and position alongside the smart money. |
Get Started Now for Just $7 → Click here to join |
To your success, |
Don Kaufman |
P.S. Earlier today I sat down with a trader who has a strategy that has an amazing 80% win-rate. If you want to see what he's doing and how you can implement it to your trading, click here to watch. |
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