Dump it Here

[Skate]

I think it is a good time to end that Action strategy and move to a different experience.

Skate.

 

[Skate]

I'm more concerned by the poor performance of the Daily Vix Strategy myself. Glad it's only paper trading.

Don't throw away a good strategy because of a small sample size
Meaning, "Don't throw the baby out with the bathwater". A small sample of 11 days & one outlier shouldn't be the yardstick. All strategies take time to develop & the VIX Daily Strategy is no different.

You can't trade the VIX
This might come as a surprise but there is a problem trying to trade the VIX, why? - because it's a "fear" indicator. In saying this, the VIX is very useful & usable but you can't trade it. It might also come as a surprise that you can't trade the "Bollinger Bands" indicator either because it's an indicator. An Indicator is just that, an indicator. But notwithstanding my comments, we can still use the indicator to our advantage to pick optimal entry & exit points of the bands. The Bollinger Bands (the indicator) is the foundation of many versions of the Bollinger Bands Breakout Strategy (BBO).

There are parts of the VIX Strategy I find disconcerting
The VIX (fear & greed indicator) goes up & down like a yo-yo. The Duc went to great lengths for me to understand how he uses the VIX (in conjunction) with a variety of other confirming indicators. Trying to code his fundamental approach utilising the VIX wasn't that hard. Duc's methodology made a great indicator but as a trading strategy is was less than impressive.

Trend Trading
With trend trading, we never get in at the start of a trend & unfortunately we need to surrender some open profits to exit. Grabbing the "meat" of the move "over & over" is the secret of successful trading & it's the same trading the VIX. I've explained it all before so I won't go over it again. Using trigger levels of the VIX "move" is at the heart of the idea. The VIX needs to sustain a continuously unbroken level over 10 days (bar-by-bar) to generate buy & sell signals. (a novel idea)

Members posts
The "Action Strategy", the "VIX Daily Strategy", the "HappyCat Strategy", the "Ducati Stop & Go Indicator", "Ducati Acceleration Indicator" & the "Ducati Blue Bar Strategy" all have been developed from the words of our resident Guru @ducati916.

Member interest
I'm sure the Duc will be taking an ongoing interest in the progress of both reported strategies. (1) The paper trading of the "VIX Daily Strategy" & eventually (2) the "HappyCat Strategy" when it goes live. As traders, we sometimes fail to realise the value contained in the posts in this forum.

Skate.

 

[Skate]

Skate.

 

[peter2]

I feel that I should clarify my comments about the performance of the Daily VIX strategy. I thought the results poor and in case it was due to the current market I compared the batch of results to another strategy over the same period. I compared it to a swing strategy that captures similar short term moves. This second strategy confirmed that there were plenty of opportunities and that 30 trades or almost 30 (29) was enough to make this assessment.

I created a list and noted every entry and exit of the trades in the Daily VIX strategy on my charts. Reviewing the trades I realised my mistake. I assessed the performance of the Daily VIX based on an incorrect assumption. The strategy of the Daily VIX system is most definitely not a swing system nor is it a trend following system. It is a system based purely on momentum. I know that @Skate has always called it a momentum system but the word gets used incorrectly far to often. Swing and trend following strategies are often called momentum systems. They're not. They rely on price movement but not momentum (price acceleration).

The Daily VIX system entry is triggered by a specific level of price momentum (not just an upward move) and the exits are triggered by an absence or reversal of momentum. I was both fascinated and impressed by the exits. They're fast. This is an active system requiring lots a work each day.

The exits are so fast that the overall W% of this strategy will be lower than most trend following systems. I estimate that it'll average out to be just below 40%. Higher in bull markets and lower in bear markets (with no index filter). This estimate is about 5% lower than trend following systems. In unsuitable market conditions this system will frustrate traders who don't understand it. It will also cause others to make incorrect assumptions about short term performance.

These fast exits are what makes this strategy work. If you have difficulty selling soon after buying don't try this system. Positive momentum and exiting quickly when it ends ensures this system will create a high AW/AL ratio, I estimate that this will be much higher than swing systems. The AW/AL of trend following systems depend on the distance of the trailing exit stop (hard to estimate).

If we combine the W% of 40% with an AW/AL of 3.5/1 (my estimate) that produces a very good expectancy. We know the number of trades is high (29/11 days) so the profit potential is very good.

Dawn is breaking, so I should try to get some sleep.

 

[Skate]

The strategy of the Daily VIX system is a system based purely on momentum. The Daily VIX system entry is triggered by a specific level of price momentum (not just an upward move) and the exits are triggered by an "absence or reversal of momentum". I was both fascinated and impressed by the exits. They're fast. This is an active system requiring lots of work each day. These fast exits are what makes this strategy work. We know the number of trades is high (29/11 days) so the profit potential is very good.

@peter2, I've condensed your post to one paragraph as it's a succinct assessment of the Daily VIX Strategy. Selling on the "absence or reversal of momentum" can sometimes be annoying. Selling good positions is frustrating at times, an example today is selling (PBH) but to be fair to the strategy "the momentum has stagnated" thus requiring a sell.

Skate.

 

[martyjames]

Hi Skate
Thanks for all the ongoing education and food for thought! Could you post a backtest report and equity curve of the Daily VIX strategy? I know we have discussed in this thread the pitfalls of doing so but would be interested to get a general feel for the system

cheers
Marty

 

[Skate]

@martyjames I try to refrain from posting backtest reports because without Norgate's “Platinum subscription” backtesting is less than reliable. Platinum users of Norgate data are able to make use of Historical Index Constituents which means that before a trade is taken the software checks to see it is in the relevant index at the time the trade is entered.

After making the disclaimer








Skate.

 

[martyjames]

Thank you Skate

 

[ducati916]

The Daily VIX system entry is triggered by a specific level of price momentum (not just an upward move) and the exits are triggered by an absence or reversal of momentum. I was both fascinated and impressed by the exits. They're fast. This is an active system requiring lots a work each day.



Dawn is breaking, so I should try to get some sleep.

That is the key observation. Given that Mr Skate is a closet Quant, it is that measurement of acceleration/deceleration, that lies at the heart of the system.

jog on
duc

 

[Warr87]

That is the key observation. Given that Mr Skate is a closet Quant, it is that measurement of acceleration/deceleration, that lies at the heart of the system.

jog on
duc

and i'm a wannabe quant. willing and able, but no skills .

 

[Roller_1]

That is the key observation. Given that Mr Skate is a closet Quant, it is that measurement of acceleration/deceleration, that lies at the heart of the system.

jog on
duc

There is obviously an interesting VIX twist thrown into that measurement, is the VIX or mom weighted higher i wonder..

 

[Skate]

Skate.

 

[Skate]

Skate.

 

[Skate]

Skate.

 

[Skate]

Index Filter
The HappyCat Strategy "Index Filter" is currently off which means there are no buy signals delaying the start of my new project.

Skate.

 

[Skate]

I know momentum systems gets used incorrectly far too often. Swing and trend following strategies are often called momentum systems. They're not. They rely on price movement but not momentum (price acceleration).

The "HappyCat Strategy"
I've made 28 separate posts about the "HappyCat Strategy" so I won't cover old ground but to say - the "HappyCat Strategy" buys momentum & uses that momentum to enter & exit a position.

The new "HappyCat Strategy" trading idea
With all trading ideas, we are trying to tilt the odds of success in our favour by buying into momentum & trends whilst minimizing our losses. Buying good companies at the "right time" & getting off quickly "at the right time" really determines if we are to be profitable in the long run. There are no free lunches when it comes to trading, it's all about swings & roundabouts. Trading is a trade-off.

More to follow
So how do we extract the maximum amount of money from the market with minimal risk?

Skate.

 

[Skate]

What is momentum trading?
Momentum trading is similar but not the same as trading breakouts. Momentum trading buys positions when the price is rising with the hope of offloading the position to someone else at a higher price. When you decide to start trading there is a way to profit. How? - find securities that are moving higher. Momentum trading is buying & selling positions according to the recent strength of price trends. If there is enough force behind a price move, it will continue to move in the same direction. Sometimes it's disappointing when they don't follow the script.

The "HappyCat Strategy" isn't a fancy strategy
Momentum trading is a strategy that uses the strength of price movements & buying positions that are rising & sell when they are considered to have peaked. Working with volatility finds buying opportunities in short-term uptrends & sell them when they start to lose momentum.

In a nutshell
As Momentum traders, we seek to identify the strength of a trend, then open a position to take advantage of the expected price change - closing the position when the trend starts to lose its strength. Simple & effective, well that's the plan at least.

Skate.

 

[Skate]

Skate.

 

[Skate]

Skate.

 

[Skate]

Why the decisions we make are so important
Life is one decision after another. We make important & not so important decisions every day & with that said sometimes life just sucks for some. We need to accept that life is a struggle & everyone will have their fair share of its ups and downs as no one is immune from this fact. The only thing you can control is your deliberate thoughts & actions so don't let your happiness hinge on what you can't control. We cannot control most things but we can control how we feel about them by changing our expectations & respect new challenges. Sometimes that's easier said than done.

Beware
Overconfidence, lack of attention to details & excessive trust in the judgments of others can bring you undone quick smart in this game.

Skate.