When I asked my members for topics they would like educational posts about, this one came up. I chose this one as its widely suspected that we COULD see another market crash soon, so its best to know what to look for before it happens.
VIX
One key chart you will start seeing react is the VIX. This is the Volatility Index, or sometimes called the Fear Index because it measures the predicted volatility the market as a whole expects. Typically when you see the VIX rise, it means we can suspect to see stock market prices start to fall.
This is because usually market increases are a slow steady march upwards over time whereas any crashes are highly volatile.
Please take some time and compare spikes in the VIX chart to the timeline on the S&P.
SPDN
This is a chart I watch constantly, and should be a member of your watchlist too. The SPDN chart is an inverse ETF of the S&P500, in simple terms when the S&P falls, this rises and vice versa. This goes one step further than just predicting volatility, it shows you where investors are actively betting on a market crash.
Clearly this is a strong indicator of which direction the market participants expect the market to move.
Its important to watch volume on this chart, not so much price - because you are interested in times investors are moving money into this asset.
You will see a large increase in volume before many recent crashes.
DBPK does the same for European stock markets.
Fundamentals
Anyone who has watched The Big Short will understand how a clear understanding of economic fundamentals will show you when and where to expect market crashes. This movie dramatises how a small group of Wall Street investors predict the 2008 financial crisis, and subsequently profit immensely from it.
So it will definitely pay to take the time (years and decades) required to truly understand market economics and the fundamentals of the financial world so that you can identify weaknesses in the framework of the stock market too.
My Current View
I personally posted about this very topic where im seeing some of the typical warning signs before a market crash happen RIGHT NOW. I have linked to this post where I go in a little bit more detail about the current climate in the related post below.
VIX
One key chart you will start seeing react is the VIX. This is the Volatility Index, or sometimes called the Fear Index because it measures the predicted volatility the market as a whole expects. Typically when you see the VIX rise, it means we can suspect to see stock market prices start to fall.
This is because usually market increases are a slow steady march upwards over time whereas any crashes are highly volatile.
Please take some time and compare spikes in the VIX chart to the timeline on the S&P.
SPDN
This is a chart I watch constantly, and should be a member of your watchlist too. The SPDN chart is an inverse ETF of the S&P500, in simple terms when the S&P falls, this rises and vice versa. This goes one step further than just predicting volatility, it shows you where investors are actively betting on a market crash.
Clearly this is a strong indicator of which direction the market participants expect the market to move.
Its important to watch volume on this chart, not so much price - because you are interested in times investors are moving money into this asset.
You will see a large increase in volume before many recent crashes.
DBPK does the same for European stock markets.
Fundamentals
Anyone who has watched The Big Short will understand how a clear understanding of economic fundamentals will show you when and where to expect market crashes. This movie dramatises how a small group of Wall Street investors predict the 2008 financial crisis, and subsequently profit immensely from it.
So it will definitely pay to take the time (years and decades) required to truly understand market economics and the fundamentals of the financial world so that you can identify weaknesses in the framework of the stock market too.
My Current View
I personally posted about this very topic where im seeing some of the typical warning signs before a market crash happen RIGHT NOW. I have linked to this post where I go in a little bit more detail about the current climate in the related post below.
