The Temptation of VXX

After closing out a position in XIV as I did on Tuesday, it can be tempting to take the opposite side of the trade in something like VXX (VIX short-term futures) or UVXY (twice leveraged VIX short-term futures).  With the sizable move from $28.85 to $29.60 in the last hour of trading yesterday, VXX has broken above its trendline (I use the 9 Exponential Moving Average) on the hourly chart and is continuing to ride that trendline higher. If you are can closely monitor your position during the day this can turn in to a nice trade.  However, given the current underlying structure of the VIX futures components of VXX, it is prone to sudden reversals and requires a trailing stop to protect gains.  Otherwise gains can quickly evaporate and turn into losses.

In my strategy and in this blog I focus on trades in positions that are intended to be held for at minimum one day and as long as several months, and must have a high probability of a positive return.  And while VXX continues to zoom higher as I write this, as of right now there is still no trade here that meets my criteria.

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