A chart setup is only half a signal
A chart setup is only half a signal until vol confirms it.
The missing part? The vol surface. This is the bit that turns a chart setup into an actual trade.
Every time I see a technical setup I like, I check the vol metrics to see if they're backing it up. If they are, my conviction goes up. If they aren't, I hold off.
Say we're breaking out to a new high. Three things I'm checking.
Fixed-strike vol. What is it doing as we break? If it's rising into that resistance, that's one check mark.
Skew. If it's moving toward calls as we break out, that's another check mark.
Positioning. Is the open interest rolling higher with spot, or is it staying put? If the options landscape isn't rolling up with the price, it isn't really confirming the breakout.
Three green lights and the break is on. Then I go to structure. Outright calls, call spreads, call flies, maybe sell some put spreads, depending on where vol sits and how much conviction I've got.
One green light and I wait. The chart can look perfect, but if the vol surface isn't moving with it, the breakout is running on price alone. And price alone fails at resistance more often than it clears it.
A chart on its own is half a signal. The vol surface is the other half. Skip it and you're trading a bit blind, in my view.
The fixed-strike vol monitor, the skew read, the positioning check. The metrics that turn a chart into a trade.
This logic is based on my DELTA framework, to learn more about the other frameworks I use to spot trades...
Imran
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