Looking For The Short Volatility Trade After +170% Year-To-Date

Markets have been made historic moves during these first few months of 2020. Here at Trading Volatility we have stayed focused on following the process of our trading systems to get off to an amazing start on the trading year.

Here is the performance of our indicators in 2020, through March 18th, as tracked by a third party (Collective2):

-  VRP+VXX Bias:   +170%

-  VXX Bias:   +238%

Subscribers to these blog posts have known since last September that something like this was coming, as I outlined in "The Once-A-Decade Volatility Trade" post. In that article I wrote

"Your opportunity is to join us now because once the next volatility spike it's too late. Our gains will be made and those without hedges in place will have lost. It's that simple."  

I'm sorry to say that it is now too late for non-subscribers to capture the full extent of this move.

However, there is still an opportunity to capture additional gains on upside from a long volatility trade (via VXX, UVXY, or TVIX) as well as "The Once-A-Decade Short Volatility Trade" which will happen after this current volatility spike runs its course.

In fact, as I've previously written in my Market Crash Protection post, our indicators successfully identify times when the market is strong and it is appropriate to short VXX (or buy an inverse ETF such as SVXY or the much-anticipated SVIX). The short volatility side of the trade is historically where most of our gains come from.

2020 has been a big year on the long volatility side of the trade and I expect it to be just as big on the short volatility side of the trade as we make our way through the Coronavirus (COVID-19) crisis.

These are difficult times and I believe that our automated trading process can be an enormous benefit to anyone who wants to be able to filter out the noise and emotional pitfalls of trading in this market.

As you know, I was not exaggerating when I said we will have the "Once A Decade Volatility Trade" and I am not exaggerating when I say we will have "The Once A Decade Short Volatility Trade."

Join us as a Trading Volatility+ subscriber so this next opportunity doesn't pass you up.

You can view what we offer to subscribers at our Subscribe page. Considering the information you get from our service, our subscription prices are actually ridiculously cheap. And for those who are afraid of commitment, we offer day passes with full access to our site for as little as $4/day.

To learn more visit our Strategy page. You can also view all the trades that our strategies have generated over the years by looking at the spreadsheets on the Results page or links to Collective2. We strive to be as transparent as possible with our service.

Free E-book:

If you'd like to learn more about our how volatility ETFs work you can read our free e-book, Fundamental Concepts and Strategies for Trading Volatility ETPs, which is available for free download. If you are curious about how our Bias forecasts work and why they have been successful in identifying long-term trends under a variety of market conditions, be sure to give this a read. It explains the basic concepts of VIX and VIX futures as well as the main price drivers of various volatility ETPs, including the popular funds VXX, VIXY, SVXY, UVXY, ZIV, and VXZ. I believe that the concepts outlined in the e-book are critical to understand if you're going to trade these products.

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Hypothetical and Simulated Performance DisclaimerThe results are based on simulated or hypothetical performance results that have certain inherent limitations. Unlike the results shown in an actual performance record, these results do not represent actual trading. Also, because these trades have not actually been executed, these results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated or hypothetical trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to these being shown. Hypothetical and backtest results do not account for any costs associated with trade commissions or subscription costs. Additional performance differences in backtests arise from the methodology of using the 4:00pm ET closing values for SVXY, VXX, and ZIV as approximated trade prices for indicators that require VIX and VIX futures to settle at 4:15pm ET

Day Pass Memberships Now Available for $5

We understand that there are investors who don't have the need for a continuous monthly subscription. For some, the timing for buying and selling volatility ETFs is limited to particular moments where they see an opportunity arise and they are ready to make a trade. Other people just want to access to our set of volatility metrics on occasion when they perceive the market to be at a potential turning point.

I am pleased to announce that you can now purchase a Day Pass to Trading Volatility+ to gain full access to our members-only site at http://members.tradingvolatility.net/ on a non-recurring basis..

Day Passes will provide you with access to:
- The members' Daily Forecast page --  See the current day's indicators as well as the next day's indicators (after 4:33pm ET).
- The members' Intraday Indicators page -- View the indicator values as they update live during regular trading hours.
- Automated change alerts -- Receive an email if there is a buy/sell alert.

Day passes are available at our Subscribe page, with the option to purchase access for 1, 2, 3, 4, or 5 consecutive days (for which the market is open). Each Day Pass is valid from the time it is activated until 11:59pm ET.

Day Passes can be purchased for as low as $4/day**.

For those who may not be familiar with our services, we have offered subscribers a set of buy/sell indicators for volatility ETFs since 2013. Our superior returns were frequently hard to believe so we started having our performance tracked by a third party in 2016.

For more on how our indicators work and can be used, please see our Strategy page. Should you have any questions feel free to reach out to us via our Contact page.


**Pricing for day passes and monthly subscriptions is subject to change.

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Hypothetical and Simulated Performance Disclaimer
The results are based on simulated or hypothetical performance results that have certain inherent limitations. Unlike the results shown in an actual performance record, these results do not represent actual trading. Also, because these trades have not actually been executed, these results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated or hypothetical trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to these being shown. Backtest results do not account for any costs associated with trade commissions or subscription costs.  Additional performance differences in backtests arise from the methodology of using the 4:00pm ET closing values for SVXY,  VXX, and ZIV as approximated trade prices for indicators that require VIX and VIX futures to settle at 4:15pm ET.

Market Crash Protection

The VXX ETF often gets a bad rap. Throughout this bull market of the past ten years it has seemingly only declined.

But VXX is actually an incredibly useful security to own when equities decline. Consider:

- In February 2018, VXX gained 44% (measured month start to end)
- In Octiober 2018, VXX gained 40%  (measured month start to end)
- In December 2018, VXX gained 36% (measured month start to end)

At this point you have to consider whether a decade-long trend is changing. Take a look at the price of VXX over the past two years:

Obviously there is significant movement in VXX and the key to making money off it is to have the ability to time entries and exits well. Enter our VXX Bias indicator...

Our VXX Bias indicator was first made publicly available in 2013 and has been tracked by a third party (Collective2) since 2016.

A snapshot of our results over that time (below) shows a gain of 348%, thanks largely to huge gains in VXX during the months where equities declined heavily. Specifically:

• February 2018 (+36%), 
• October 2018 (+28%), 
• December 2018 (+21%).

But our strategy doesn't just excel when the equity market does poorly. That's because our VXX Bias signals when to buy VXX as well as when to short VXX. It successfully identifies times when the market is strong and it is appropriate to short VXX (or buy the inverse ETF, ticker SVXY).

Equally significant gains are made by shorting volatility. Specifically:

• March 2016 (+25%), 
• May 2016, (+20%), 
• June 2016 (+34%), 
• January 2017 (+30%)

I wouldn't fault you for being skeptical of these results since they are outside the norm of what people are told is possible. Which is exactly the reason why I wanted to have the results tracked by a third party over three years ago. People like see actual trades and results. Our customers now include DIYers, Financial Advisors, and hedge funds.

If you look closely at the monthly returns you'll see that we also have months where the strategy does poorly. It should come as no surprise to you that trading is difficult and there is no strategy that works in all market conditions. We typically find ourselves struggling through choppy markets and sharp reversals. We do take losses, for this is not a magic money machine. Fortunately these episodes are relatively brief and our indicator is tuned to maximize profits over the long term.

It has been my honor to have helped thousands of subscribers over the past 6 years. From my initial post in Dec 2012 my mission has been to help investors navigate the use of volatility ETPs and enhance their portfolio returns. We look forward to helping others who can benefit from our expertise.

We make it as easy as we can for people to follow our strategies by sending automated signals change alerts, preliminary alerts, and daily summaries.

Check out what we offer to subscribers by viewing our Subscribe page. Considering the information you get from our service, our subscription prices are actually ridiculously cheap.

To learn more visit our Strategy page. You can also view all the trades that our strategies have generated over the years by looking at the spreadsheets on the Results page or on Collective2.

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Hypothetical and Simulated Performance Disclaimer
The results are based on simulated or hypothetical performance results that have certain inherent limitations. Unlike the results shown in an actual performance record, these results do not represent actual trading. Also, because these trades have not actually been executed, these results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated or hypothetical trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to these being shown. Backtest results do not account for any costs associated with trade commissions or subscription costs.  Additional performance differences in backtests arise from the methodology of using the 4:00pm ET closing values for SVXY,  VXX, and ZIV as approximated trade prices for indicators that require VIX and VIX futures to settle at 4:15pm ET.

Market Trends Point To Another Year of Volatility in 2019

Navigating the stock market in 2017 was easy. Shorting volatility was easy money. Picking individual stocks was easy and everyone was a brilliant strategist.

Then came 2018. The graph below highlights the fact that while less than 2% of assets were negative in 2017, 90% of assets are negative YTD in 2018 -- they highest percentage since... ever.

In another stark contrast to 2017, the short volatility ETPs have lost over 90% of their value in 2018 thanks to February's historic volatility spike. Last year's buy-and-hold everything strategy has been a bust across the board in 2018.

One of the few assets that lost in 2017 was volatility. Unsurprisingly, volatility has been one of the few bright spots in 2018 with the VIX index gaining +74% YTD and VXX +32% YTD.

What sort of market trends appear to be happening now and on tap for 2019?
 - decelerating corporate earnings [now]
 - late stages of the corporate debt cycle [now]
 - decline of demand for U.S. Treasuries [now]
 - quantitative tightening [now]
 - slowing global growth [now]
 - trend of de-dollarization [now]
 - eventual reverse to more quantitative easing [late 2019]

That's a recipe for another difficult year for a range of assets with a strong possibility of wide movements within the equity markets as the year progresses. As we stated three years ago, traders need data-driven, reliable, observable, and easy-to-follow trading rules in order to set themselves up for consistent success. One of the reasons that 90% of people fail to make money at trading is they fail to have a process-oriented trading plan. As the saying goes, "Plan the trade. Trade the plan."

We think that volatility will again be a major factor within the markets in 2019. Our playbook to make money on short-term investing opportunities is to maintain a quantitative-driven investment process for volatility ETPs that has made us successful for the past 7+ years. Specifically, our VXX Bias and VRP indicators.

Why? Because they perform exceedingly well over the long term by trading both long volatility using VXX (soon to be replaced by VXXB) and short volatility using SVXY (previously using XIV).

We've previously noted that 2018 has given us trouble and that hasn't changed much since July. Our automated trading performance as tracked by a third party now stands at -22% for VRP+VXX Bias and +33% for VXX Bias. While the year is not yet over, those numbers are lagging average performance in most years. However, when the average annual return is north of 50% per year under a range of varying market conditions with best performance occurring during market drawdowns, it makes sense to stick with a good thing.

We take the guesswork out of the investing equation with a solid set of objective tools to guide decision making. At Trading Volatility our algorithms conduct daily monitoring of a variety of volatility-related data to generate our VXX Bias and VRP indicators which provide us with objective information about the likely direction of volatility ETPs, including VXX, VXXB, UVXY, TVIX, SVXY and ZIV.

Our algorithms continuously measure market data throughout each trading day and publish results on our subscribers' Intraday Indicator page. Our automation also emails and publishes the indicators' final values at the end of each day so that subscribers' can track the indicator of their choosing and act accordingly.

If you find yourself struggling in this market check us out. Stop guessing what will happen and sign up for our daily data-driven indicators for volatility ETPs.  To learn more visit our Strategy page and Subscribe page or drop us a line via the Contact page.

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Hypothetical and Simulated Performance Disclaimer
The results are based on simulated or hypothetical performance results that have certain inherent limitations. Unlike the results shown in an actual performance record, these results do not represent actual trading. Also, because these trades have not actually been executed, these results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated or hypothetical trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to these being shown. Backtest results do not account for any costs associated with trade commissions or subscription costs.  Additional performance differences in backtests arise from the methodology of using the 4:00pm ET closing values for SVXY, VXX, VXXB, and ZIV as approximated trade prices for indicators that require VIX and VIX futures to settle at 4:15pm ET.

Our Indicators Performance Update - YTD Through July 2018

After a strong 2016 (+96%) and 2017 (+126%), our performance in 2018 has been rather lackluster so far.

The biggest difference between this year and previous years is that the short volatility trade isn't working well. We've generally seen small roll yields, choppy market conditions with strong whipsaw reversals, and a VIX that closed the first day of the year with a record low close of 9.77 (47% below the median close on the first day of the year). As you can see in the graph below, the short volatility trade (via buying SVXY) has generally contributed between plus and minus 10% to performance of both indicators all year.

The long volatility trades (via buying VXX) helped the performance for the VXX Bias with YTD returns briefly exceeding 100% after February's historical VIX spike. Despite the initial success however, both VRP+VXX Bias and VXX Bias indicators gave back most of their long volatility gains after February, as shown in the graph below.

Putting both the long and short volatility trades together for 2018 we arrive at the following YTD performance (through July):

• VRP+VXX Bias: -19%
• VXX Bias: +37%
• VRP: -93%
• SVXY (buy and hold): -89%

This year's journey can be viewed in the equity curves below:

As we did during 2016 and 2017, we continue to send our automated trade alerts to Collective2's auto-trading platform. Below is how our indicators performed, as tracked by Collective2 (performance values and graphs here date back to launch in February 2016).1

Overall, I've been very happy with how the indicators have performed since they were launched on our website back in 2013, but this year has certainly been slow so far -- especially over the last four months. 

As usual, I've updated the values for monthly returns and they have been updated on our Strategy page, as well as below.

Note: Trading Volatility+ subscribers have access to our VRP and VXX Bias indicators, our intraday indicator data, receive emails with preliminary and final change alerts for each of the indicators as well as our daily summaries, and interact with our private community of volatility traders in the forum. If interested, you can learn more about our services on our Subscribe page.

As always, each day's indicator values, buy/sell triggers, trade performance summary, and equity curves are tracked in the spreadsheets linked at the bottom of our Subscribe page. Additional information on our trading strategy and indicators can be found on our Strategy page.

1Note: As mentioned in our previous post, you will find differences between the ideal/hypothetical indicator performance and actual trading performance for the following reasons:
- The VRP+VXX Bias indicator ("Trading Volatility 1" on C2) was launched on C2 on Feb 2, 2016.
- The VXX Bias indicator was launched on C2 on Feb 19, 2016
- Both C2 systems traded only 72%-80% of portfolio equity until April 1. After April 1, both C2 systems trade at ~97.5% portfolio equity (the ideal/hypothetical model portfolios trade at 100% equity).
- The ideal/hypothetical performance does not account for trade commissions or subscriptions costs.

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Hypothetical and Simulated Performance Disclaimer
The results are based on simulated or hypothetical performance results that have certain inherent limitations. Unlike the results shown in an actual performance record, these results do not represent actual trading. Also, because these trades have not actually been executed, these results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated or hypothetical trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to these being shown. Hypothetical and backtest results do not account for any costs associated with trade commissions or subscription costs. Additional performance differences in backtests arise from the methodology of using the 4:00pm ET closing values for SVXY, VXX, and ZIV as approximated trade prices for indicators that require VIX and VIX futures to settle at 4:15pm ET.

February YTD Performance of Our Volatility Indicator

2018 has gotten off to a wild start in the volatility world as volatility exploded higher in early February. The VIX Index recorded a new all-time 1-day gain of 115.6%, followed by a new all-time 1-day loss of -58% on the following day. This resulted in quite a bit of carnage, completely destroying XIV and causing large losses in SVXY.

Below are the equity curves of all strategies YTD 2018, compared to XIV (SVXY).



Our VRP+VXX Bias indicator has taken a hit, with a -6% return after the first two months of the year. The picture looks a little bit worse on Collective2 due to some platform execution errors.

VXX Bias outperformed with a buy of VXX in mid-January, reaching unrealized gains of over 100% YTD before giving quite a bit back to end February at +46%.

SVXY obviously took a hit and is -90% YTD. The standalone VRP strategy got caught holding SVXY/XIV and is tracking at -90% as well.


Cumulatively, VRP+VXX Bias has recorded a +201% gain since we started tracking performance by a third party in February 2016. Meanwhile VXX Bias had a large leap and is now +345% since launch on Collective2.

The "Trading Volatility 1" system is the auto-traded version of our VRP+VXX Bias indicator which we have published daily to Trading Volatility+ subscribers for nearly five years now.

Trading Volatility+ subscribers have access to our VRP and VXX Bias indicators, our intraday indicator data, receive emails with preliminary and final change alerts for each of the indicators as well as our daily summaries, and interact with our private community of volatility traders in the forum. If interested, you can learn more about our services on our Subscribe page.

As always, each day's indicator values, buy/sell triggers, trade performance summary, and equity curves are tracked in the spreadsheets linked at the bottom of our Subscribe page. 

Additional information on our trading strategy and indicators, including the updated monthly performance tables, can be found on our Strategy page.


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Hypothetical and Simulated Performance Disclaimer
The results are based on simulated or hypothetical performance results that have certain inherent limitations. Unlike the results shown in an actual performance record, these results do not represent actual trading. Also, because these trades have not actually been executed, these results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated or hypothetical trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to these being shown. Hypothetical backtest results do not account for any costs associated with trade commissions or subscription costs. Additional performance differences in backtests arise from the methodology of using the 4:00pm ET closing values for XIV, VXX, and ZIV as approximated trade prices for indicators that require VIX and VIX futures to settle at 4:15pm ET

Our 2017 Indicator Performance: +126%

We had a great 2016 with our primary indicator turning in a +96% gain, but 2017 was even better with a +126% gain. It was a bit of a wild journey, however, with a political headlines and threats of nuclear war popping up to cause some pretty strong drawdowns mid-year. Our equity curve for 2017 using hypothetical portfolios is as follows:

Below is how our indicators performed when we sent our trade orders through Collective2's auto-trading platform (performance values and graphs here date back to launch in February 2016), echoing the above equity curves.1

Both our VXX Bias and VRP+VXX Bias strategies were bested by a buy-and-hold approach with XIV in 2017 as it set a new record for best annual return. However, knowing that it is not a good idea to buy and hold XIV, I believe the VRP+VXX Bias performance was still rather good and it helped us to sell when it detected trouble coming our way.

Updated statistics:

Values for monthly returns have been tracked along the way and are updated on our Strategy page as well as below.

Trading Volatility+ subscribers have access to our VRP and VXX Bias indicators, our intraday indicator data, receive emails with preliminary and final change alerts for each of the indicators as well as our daily summaries, and interact with our private community of volatility traders in the forum. If interested, you can learn more about our services on our Subscribe page.

As always, each day's indicator values, buy/sell triggers, trade performance summary, and equity curves are tracked in the spreadsheets linked at the bottom of our Subscribe page. Additional information on our trading strategy and indicators can be found on our Strategy page.

1Note: As mentioned in our previous post, you will find differences between the ideal/hypothetical indicator performance and actual trading performance for the following reasons:
- The VRP+VXX Bias indicator ("Trading Volatility 1" on C2) was launched on C2 on Feb 2, 2016.
- The VXX Bias indicator was launched on C2 on Feb 19, 2016
- Both C2 systems traded only 72%-80% of portfolio equity until April 1. After April 1, both C2 systems trade at ~97.5% portfolio equity (the ideal/hypothetical model portfolios trade at 100% equity).
- The ideal/hypothetical performance does not account for trade commissions or subscriptions costs.

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Hypothetical and Simulated Performance Disclaimer
The results are based on simulated or hypothetical performance results that have certain inherent limitations. Unlike the results shown in an actual performance record, these results do not represent actual trading. Also, because these trades have not actually been executed, these results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated or hypothetical trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to these being shown. Hypothetical and backtest results do not account for any costs associated with trade commissions or subscription costs. Additional performance differences in backtests arise from the methodology of using the 4:00pm ET closing values for XIV, VXX, and ZIV as approximated trade prices for indicators that require VIX and VIX futures to settle at 4:15pm ET.

Our 2016 Indicator Performance: +96%

Our indicators had a really nice 2016, with our flagship VRP+VXX Bias indicator finishing +96% and our VXX Bias +149%.

The first quarter checkpoint of +59% set a great tone for the year while our July checkpoint of +91% YTD put us close to where we finished for the year after going through a volatile third quarter. Our equity curve for 2016 using a hypothetical portfolio is as follows:

Below is how our indicators performed when we sent our trade orders through Collective2's auto-trading platform (since launch in February 2016), echoing the above equity curves.1


VRP+VXX Bias ("Trading Volatility 1")

VXX Bias:

 



2016 will go down in the books as a below average for the VRP+VXX Bias strategy's +96%, while VXX Bias's +149% ranks in the top three among all backtest years.

Updated statistics:

Values for monthly returns have been tracked along the way and published on our Strategy page.

Trading Volatility+ subscribers have access to our VRP and VXX Bias indicators, our intraday indicator data, receive emails with preliminary and final change alerts for each of the indicators as well as our daily summaries, and interact with our private community of volatility traders in the forum. If interested, you can learn more about our services on our Subscribe page.

As always, each day's indicator values, buy/sell triggers, trade performance summary, and equity curves are tracked in the spreadsheets linked at the bottom of our Subscribe page. Additional information on our trading strategy and indicators can be found on our Strategy page.


1Note: As mentioned in our previous post, you will find differences between the ideal/hypothetical indicator performance and actual trading performance for the following reasons:
- The VRP+VXX Bias indicator ("Trading Volatility 1" on C2) was launched on C2 on Feb 2, 2016.
- The VXX Bias indicator was launched on C2 on Feb 19, 2016
- Both C2 systems traded only 72%-80% of portfolio equity until April 1. After April 1, both C2 systems trade at ~97.5% portfolio equity (the ideal/hypothetical model portfolios trade at 100% equity).
- The ideal/hypothetical performance does not account for trade commissions or subscriptions costs.


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Hypothetical and Simulated Performance Disclaimer
The results are based on simulated or hypothetical performance results that have certain inherent limitations. Unlike the results shown in an actual performance record, these results do not represent actual trading. Also, because these trades have not actually been executed, these results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated or hypothetical trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to these being shown. Hypothetical and backtest results do not account for any costs associated with trade commissions or subscription costs. Additional performance differences in backtests arise from the methodology of using the 4:00pm ET closing values for XIV, VXX, and ZIV as approximated trade prices for indicators that require VIX and VIX futures to settle at 4:15pm ET.

Our Indicator Performance: +82% YTD Through November

It is time again for a year-to-date performance update of our indicators.

First, we have the hypothetical results using the daily indicators values in our model simulations (using ~100% equity on trades and assuming zero trade commissions). Here is the daily equity curve of all indicators, compared to XIV (buy-and-hold):

As you can see, the YTD performance of our indicators using hypothetical models has come down a bit since our update in July and subsequent peak on September 7th. Despite this lull, 2016 has been a very good year for us. Through November, the performance now sits at:
- VRP+VXX Bias: +82%
- VXX Bias: +122%
- VRP: +7%

For reference, 2016 performance of the publicly-traded "short volatility ETN" (ticker: XIV) and the "long volatility ETF" (ticker: VXX) are at:
- XIV (buy and hold): +69%
- VXX (buy and hold): -65%


Auto-Trade Performance on Collective2
We have tracked our actual trades and performance on Collective2's site since February 2016 (links: VRP+VXX Bias & VXX Bias). Our VRP+VXX Bias and VXX Bias indicators and both 100% automated algorithms which send signals to Collective2's platform for auto-trade execution in our trading account and performance tracking.¹

From launch (February 2016) through November, performance on the auto-trade systems sit at:

- VRP+VXX Bias: +65%
- VXX Bias: +83%
- VRP: (not auto-traded)

As of last week, the current cumulative returns for our strategies auto-traded on Collective2 will be updated daily on our Strategy Page.

Compared to the indicators' historical record, 2016 is currently sitting around average for the year. Also posted on our Strategy Page, we have the monthly and annualized statistics for each of our strategies compared to XIV (buy-and-hold):


Trading Volatility+ subscribers have access to our VRP and VXX Bias indicators, our intraday indicator data, receive emails with preliminary and final change alerts for each of the indicators as well as our daily summaries, and interact with our private community of volatility traders in the forum. If interested, you can learn more about our services on our Subscribe page.

As always, each day's indicator values, buy/sell triggers, trade performance summary, and equity curves are tracked in the spreadsheets linked at the bottom of our Subscribe page. Additional information on our trading strategy and indicators can be found on our Strategy page.




¹Note: As mentioned in our previous post, you will find differences between the ideal/hypothetical indicator performance and actual trading performance for the following reasons:
- The VRP+VXX Bias indicator ("Trading Volatility 1" on C2) was launched on C2 on Feb 2, 2016.
- The VXX Bias indicator was launched on C2 on Feb 19, 2016
- Both C2 systems traded only 72%-80% of portfolio equity until April 1. After April 1, both C2 systems trade at ~97.5% portfolio equity (the ideal/hypothetical model portfolios trade at 100% equity).
- The ideal/hypothetical performance does not account for trade commissions or subscriptions costs.

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Hypothetical and Simulated Performance Disclaimer
The results are based on simulated or hypothetical performance results that have certain inherent limitations. Unlike the results shown in an actual performance record, these results do not represent actual trading. Also, because these trades have not actually been executed, these results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated or hypothetical trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to these being shown. Hypothetical and backtest results do not account for any costs associated with trade commissions or subscription costs. Additional performance differences in backtests arise from the methodology of using the 4:00pm ET closing values for XIV, VXX, and ZIV as approximated trade prices for indicators that require VIX and VIX futures to settle at 4:15pm ET.

Our Indicator Performance: +91% YTD Through July

With year-to-date performance numbers that look too good to be true, it's a good thing we started having our actual trades and performance tracked using Collective2's auto-trading capabilities earlier this year.

First, our indicator performance in 2016 (through July):
- VRP+VXX Bias: +91%
- VXX Bias: +142%
- VRP: +16%

Performance in 2016 of the "short volatility ETN" (ticker: XIV) and the "long volatility ETN" (ticker: VXX):
- XIV (buy and hold): +31%
- VXX (buy and hold): -49%

The daily equity curve of all indicators, compared to XIV (buy-and-hold):

Actual Trade Performance
Our VRP+VXX Bias and VXX Bias indicators and both 100% automated algorithms which send signals to Collective2's platform for auto-trade execution in our trading account (NOTE: we do not trade the standalone VRP strategy).

Our actual trades and performance can be found on Collective2's site (links: VRP+VXX Bias & VXX Bias). You will find differences between the ideal indicator performance (above) and actual trading performance for the following reasons:
- The VRP+VXX Bias indicator ("Trading Volatility 1" on C2) was launched on C2 on Feb 2, 2016.
- The VXX Bias indicator was launched on C2 on Feb 19, 2016
- Both C2 systems traded only 72%-80% of portfolio equity until April 1. After April 1, both C2 systems trade at ~97.5% portfolio equity (ideal indicator performance assumes ~100% use of equity).

Compared to the indicators' track record, 2016 has the potential to be an above average year. As posted on our Strategy Page, we have the annual statistics for each of our strategies compared to XIV (buy-and-hold):

We also now track our strategy statistics on a monthly timeframe:

One other observations is that trading has been less active than usual this year with only 7 trades so far for VRP+VXX Bias and 5 trades for VXX Bias.

All-in-all it's been a good year so far. It will be interesting to see how the rest of the year unfolds.


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Hypothetical and Simulated Performance Disclaimer
The results are based on simulated or hypothetical performance results that have certain inherent limitations. Unlike the results shown in an actual performance record, these results do not represent actual trading. Also, because these trades have not actually been executed, these results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated or hypothetical trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to these being shown. Additional performance differences in backtests arise from the methodology of using the 4:00pm ET closing values for XIV, VXX, and ZIV as approximated trade prices for indicators that require VIX and VIX futures to settle at 4:15pm ET.

Our Indicator Performance: +59% In First Quarter Of 2016

I am proud to announce two of Trading Volatility's achievements for the first quarter of 2016. First, our indicators put in a rather impressive performance to kick off the year. We also launched automated trading for our VRP+VXX Bias and VXX Bias algorithms via Collective2's world-class platform.

First Quarter Indicator Results
The Trading Volatility indicators had a bit of a slow start in the first month of 2016 but rallied strong off of February's market low. Our VRP+VXX Bias indicator finished at +59% for the first quarter of 2016, while our VXX Bias came in at +64%. Our VRP indicator finished the quarter at +46%.

Below is the first quarter equity curve for the Trading Volatility indicators versus XIV (buy and hold):

For those interested in additional details of the indicators, the daily history of indicator values that have been emailed to subscribers in 2016 can be found in the data sheet links below:
- VXX Bias: 2016
- VRP: 2016
- VRP+VXX Bias: 2016


Launch of Auto-Trading
While I'm happy about the performance over the first quarter I'm even happier about the new option of auto-trading our indicators on Collective2's platform. As I announced a couple months ago, you can now have trades automatically placed in your brokerage account whenever the VRP+VXX Bias indicator changes. Since that post, we have added auto-trading for the VXX Bias indicator as well. Both strategies are available on Collective2 at an 85% discount for active Trading Volatility+ subscribers.

I have previously written that the key to successful investing is to have a solid plan as well as the discipline to be able to execute against it. Having our indicators automated does exactly that.

No more worrying about missing trades because I'm too busy.
No more emotional barriers making me wonder if I'm making the right decision to buy or sell.
No more distractions from the noise of daily market movements.
No more being tied to a trading screen all day.

The indicators now execute against the plan automatically and actual trades are tracked on Collective2's site at the following pages: VRP+VXX Bias indicator & VXX Bias indicator

Nothing changes for the existing Trading Volatility+ service. Subscribers will continue to have access to our intraday indicator data, receive emails with preliminary and final change alerts for each of the indicators as well as our daily summaries, and interact with our private community of volatility traders in the forum. If interested, you can learn more about our services on our Subscribe page.

As always, each day's indicator values, buy/sell triggers, trade performance summary, and equity curves are tracked in the spreadsheets linked at the bottom of our Subscribe page. Additional information on our trading strategy and indicators can be found on our Strategy page.





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Hypothetical and Simulated Performance Disclaimer
The results are based on simulated or hypothetical performance results that have certain inherent limitations. Unlike the results shown in an actual performance record, these results do not represent actual trading. Also, because these trades have not actually been executed, these results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated or hypothetical trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to these being shown. Additional performance differences in backtests arise from the methodology of using the 4:00pm ET closing values for XIV, VXX, and ZIV as approximated trade prices for indicators that require VIX and VIX futures to settle at 4:15pm ET.

Our 2015 Indicator Performance: +36%

2015 was a difficult year in the investing world. As it turns out, one of the best performing assets last year was cash since most other asset classes lost money.

According to CNBC, 2015 was the hardest year to make money in 78 years. Investment legends struggled with David Einhorn's Greenlight Capital and Bill Ackman's Pershing Square fund both losing 20%, while average hedge fund performance did not breakeven. In the process, 31 hedge funds shut down during 2015.

It is against this backdrop that we highlight our own struggle in 2015: +36% for our primary indicator (the VRP+VXX Bias).

The end results were respectable, but getting there was anything but easy. The second half of the year was fairly stressful and a bit disappointing given that it was +77% in June. The 2015 equity curve for each of our indicators for trading XIV & VXX, along with XIV's performance, is shown in the following graph.

Drawdowns were painful with VXX Bias experiencing a 43% drawdown in August, fully recovering and hitting a new peak of +94% YTD on September 1st, only to be followed by a 40% drawdown in October. VRP+VXX Bias strategy also experienced a 40% drawdown in the second half of the year and was not able to recapture its +77% high from June before year end.

For the more experienced traders these drawdowns were rather unpleasant. For the uninitiated, the drawdowns were probably enough to make them call it quits. But in the end, it was another year of outperforming just about everything by a large margin with only a couple dozen trades.

In order to compare our results to other known volatility strategies I've included Volatility Made Simple's 2015 performance graph for 24 strategies, below.  Only the VIX vs VXV strategy outperformed our VRP+VXX Bias in 2015, but that strategy's long-term performance remains comparatively poor and suffers from inconsistency (57.6% avg annual return, 0.93 Sharpe ratio, and 70.6% max drawdown).

ZIV Bias Indicator
At -2%, ZIV (the medium-term VIX Futures inverse fund) once again outperformed XIV, which came in at -17% for 2015. While the ZIV Bias indicator was successful in its goal of keeping traders in cash and out of August's major drawdown, it faltered a bit during the choppy trading at the very beginning and end of the year. Ultimately, the ZIV Bias indicator underperformed buy-and-hold this year with a -9%.

As always, each day's indicator values, buy/sell triggers, trade performance summary, and equity curves are tracked in the spreadsheets linked at the bottom of our Subscribe page. Additional information on our trading strategy and indicators can be found on our Strategy page.

Trading Volatility+ subscribers have the benefit of seeing our intraday indicator data, receiving emails with preliminary and final change alerts for each of the indicators as well as our daily summaries, and interacting with our private community of volatility traders in the forum. If interested, you can learn more about our services on our Subscribe page.

2016 is already shaping up to be another exciting year for Trading Volatility. We'd love to have you join us in taking on this difficult market!

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Hypothetical and Simulated Performance Disclaimer
The results are based on simulated or hypothetical performance results that have certain inherent limitations. Unlike the results shown in an actual performance record, these results do not represent actual trading. Also, because these trades have not actually been executed, these results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated or hypothetical trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to these being shown. Additional performance differences in backtests arise from the methodology of using the 4:00pm ET closing values for XIV, VXX, and ZIV as approximated trade prices for indicators that require VIX and VIX futures to settle at 4:15pm ET.