How to Time Long Volatility Strategy
November 27, 2018
November 27, 2018
How to use the Technical Event Model
Here is an example of waiting for near 100% certainty set up. The overarching measurement for engagement of the long volatility strategy is our Technical Event Model (TEM).
One reason why a many will ignore this idea is they expect to see profits every calendar period for the system, but consistency is not the point here, at least not yet. Instead, can a trader use a filter to tell him when to trade a market strategy and when to trade it aggressively or not to trade it at all? That is the point; we can work that into monthly and annual profit consistency later.
If you recall that 2016 and ’17 experienced the lowest volatility in history, now had you known that going into those years, you would buy only those investment vehicles and market strategies that prosper from low volatility. You would have avoided volatility breakout systems in general.
It is easy to see that the strategy had four good years, two of which were great 2008 and 2018. All four years had our TEM preceded it with low volatility readings that went into a high volatility environment.
The monthly charts ended 2017 with our model at a TechncTechnical #3, extremely low, they peaked on panic buying and have sustained high V readings since that date, very accommodative to this hedge plan. 2015 was also preceded by an extremely low reading in historical volatility supporting the system in the second half of the year. Something that can be refined looking at the weekly charts, fine-tuning the months within the year, see below.
The years to avoid this hedge – 2016 and 2017 – our measure of historical volatility was rolling over and trending lower, not support the hedge.
Both 2006 and 07 had low and descending readings by our Historical Volatility at least until the 2nd half of 2007 when they turned up. In 2008 %C trended lower calling for a range expansion while direction dynamics was forcefully measured by the ascending Historical Volatility, both support the short selling breakout scalping system.
The strategy itself has TEM hardcoded for its weekly filtering leaving the annual/monthly decisions to be filtered by the trader/capital manager.
When you look at the weekly TEM, you will see that the same interpretation is use and is consistent in its projections.
Using the top-down approach, looking at the weekly to determine what to do on a smaller bar, you will see that a low reading by %C and historical volatility called a Technical Event (TE) #3 started in July and ended the first of October. So by bracketing off these months with this observation from the aggressive hedge long volatility strategy, the system avoids the drawdown.
The drawdown in July through September was preceded by TEM on the weekly chart reaching an extremely low and staying low until breaking out in early October. This dull period was also preceded by the Technical Event #3.
Both the monthly – used for a long-term view – and the weekly bar – used for an intermediate-term view provide the overarching rules of engagement for the trading strategy being used a short only breakout scalping strategy. Scalping in that it is programmed to take small profits and to use the Turtle money management technique to leverage up and down when the plan is engaged.
The results here are net $32.00 round turn cost.
The weekly chart below shows that from today (late November 2018) and until our model tells us to disengage this short selling strategy should be fully engaged. Depending on your size and portfolio structure this system is a hedge that achieves Alpha.
If Historical volatility remains positive for the volatility breakout systems and %C moves above its high threshold again for a rule #4 or turns lower from here, would suggest the dynamic trend could be more forceful than what the market has experienced in 2018 with the backing of a weekly range expansions, very supportive for the hedge.
ContraryThinker Subscribers that use TradeStation or NinjaTrader can have the workspaces for the Technical Event Model and the CT library of indicators used in our publications along with their subscription.
User docs, regular support memos and market briefs applying these expert tools to all the markets.
Hedge Fund managers/systems traders, our group, has a library of trading strategies that fit every trading style. All of our algo trading strategies have the risk and opportunity management model – Technical Event Matrix (TEM) – embedded their code.
The above long V scalping market strategy is based on a robust breakout idea in %BB-Dynamic Breakout and Reversal system used now for decades. Here are the long-term results – over ten years, trading a fixed two lot. It trades, RTY, ES, EMD, GC, CL, and RB.
Our member investor/traders can implement this strategy within a comprehensive system with no second-guessing using the TEM. They have the governing model for visual control.
The end of the year brings CountraryThinker’s seasonal specials, offering %BB-DBR (six markets) for half price, a savings of $2,500 to sustaining members, which includes free upgrades and technical support, if you want the long V strategy used above just add $495 to include it ; non-members add $495.00 for a year of superior service and membership to the blog/newsletter and educational briefs, if you would like %BB and the long V strategy use this link, please.
Complete library and mentorship offered by my affiliate Thinking Man’s Trader, called Team Level One. If you are not a sustaining member of either group, a professional LinkedIn profile is required. Our annual 50% discount applies to this investment, which saves $12,500 USD.
If you are interested in the related Jr. partner offering and you are not a sustaining member, Please contact me to discuss.
This work by Jack Cahn is licensed under a Creative Commons Attribution-NonCommercial 4.0 International