New Feature on the Four Sigma Trading Website

Today, I added a couple of cool features to the Four Sigma Trading website.  On my "philosophy" page you will see a yellow box on the right side of the screen.  At the top, there are the results of the systems that are currently running.  Under that, there is something called "Current Market Sigma" and "Current VIX Sigma".

The Current Market Sigma shows the average of the sigma value for roughly all of the stocks in the market (I omit very small stocks with small trading volume).  The more negative the number, the worse the market has traded over the past few weeks, and the higher the number, the better the market is doing as a whole.  We should expect the number do be between 1 and -1 in a normal market.  As of this writing, the market average is at -2.60 which reflects how bad the market has been doing over the past few weeks.

The Current VIX Sigma shows where the volatility index is relative to its normal range.  This too should probably be in the range of 1 to -1 in a normal market.  However, as the VIX's sigma becomes more positive, this is a sign the market is trading at a more abnormally high level.  The more negative the VIX's sigma, then that shows the market is much more calm.

How can you use these numbers?  Well, if you have a high market sigma and a high VIX sigma, then there may be a top forming in the market.  If you have a very low market sigma and a high VIX, then the bottom may be forming.  We like to see the vix sigma hovering around its normal range with a positive market sigma.  So, watch the VIX sigma and the Market sigma together to get a feel for the current market situation.

Then you will see a two lists; one is the Top Ten Sigmas and the Bottom Ten Sigmas.  These lists show you the stocks that are trading at higher levels than normal (and are probably good breakouts) and those that are trading much lower than normal and may be breakdown plays or may be ripe for value investing.

Stay tuned as we keep finding more ways to use sigma.