how to trade the vix

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How to Trade the VIX: Using the "Fear Gauge" to Hedge Down Markets

If you don't know already, it's time to learn something all serious investors should know: how to trade the VIX Indicator (VIX).

While most investors are scrambling to figure out whether the market is headed up or down, savvy pros use the VIX both as means of protection and a source of profit.

In fact, Money Morning Capital Waves Strategist Shah Gilani last week alerted his Capital Wave Forecast subscribers to a VIX trade that would add some protection to their portfolios.

"Call me a Nervous Nellie, if you like," said Gilani, "but I'd rather lose out on a hedge than get killed because I didn't have one on when the proverbial shot hit its mark."

That's why knowing how to trade the VIX is so essential.

But before we get into how to trade the VIX, we need to understand what the VIX actually is.

What the VIX Indicator Measures

Most investors think of the VIX simply as a "fear gauge."

But contrary to what most people think, the VIX doesn't measure actual stock market volatility.

In fact, experts view the VIX as possibly one of the best contrarian indicators in the business.

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