CORRECTION. Belatedly just checked again and my gross from Jul 1 19 - Dec 31 19 was more modest 7% (I thought I started mid year when in fact I started a couple of weeks earlier and I was including returns from the earlier start). After costs then I think GAT you in fact beat me. I wouldn't want to boost my performance with fake news, plus the idea of beating the sensei was starting to unsettle me
How do folks deal with spikes in V2TX (and I assume other volatility indices) during spikes like yesterday? I'm trading a system as described in Leveraged Trading, with 3 instruments (Corn, V2TX and US 5 year bonds) and all 13 rules (6 MAC, 6 Breakout and carry), and combined forecast went from -4 yesterday to 8.2 today (I use closing prices, so today's run saw the spike. On my account size, that's short 2 contracts yesterday, into long 4 contracts today), that's quite an extreme jump. I did some digging, and as recommended in the book, I use 50% weight for carry and that's the one that had the biggest impact in the combined forecast. And I'd assume it will be reversed again in the next few days unless we see another event. I'm holding a March 2020 contract, and using February to compute carry, it's also quite possible that I have a bug somewhere In GAT's first book, Systematic Trading, he showed how to implement carry smoothing, I presume just for this purpose, is that what folks are using? Thanks!
here's what happened when VIX jumped a lot around Feb 1 2018 (one of the advantages of having this thread - it's a nice historical log of events ), some people lost some money and some other people nearly lost money https://www.elitetrader.com/et/threads/fully-automated-futures-trading.289589/page-146 I think the general conclusion is simply to not allocate too much weight to VIX\V2TX and not trade the nearest contracts. And also smoothing with multiple different lookbacks..
Thanks for that link Kernfusion, that was helpful. I'll reduce exposure to that instrument until I figure out smoothing. I also did some digging to see if it's feasible to trade a contract further out, here's what I got if others are interested. Code: 2020-01-23 2020-01-24 2020-01-27 2020-01-28 % jump 20200219 14.10 13.75 15.65 14.70 12.140575 20200318 14.40 14.20 15.35 14.90 7.491857 20200415 15.15 14.95 15.70 15.20 4.777070 20200520 15.55 15.40 15.80 15.35 2.531646 20200617 15.85 15.75 16.15 15.75 2.476780 20200722 15.85 15.80 16.20 15.85 2.469136 20200819 15.95 15.95 16.30 16.05 2.147239 20200916 NaN 16.10 16.45 16.25 2.127660 These are the prices of all currently available contracts, on 1/23 - 1/28 and a percentage jump between 24th and 27th. Quite visible that first 2 contracts had big jumps. When compared with volume and open interest data for those, I think there's still enough liquidity to, say, trade June contract and use May for carry, and volatility goes down significantly. I think I'll do that change too. Code: Delivery month Opening price Daily high Daily low Last price Settlem. price Traded contracts Open interest Open interest (adj.) Feb 20 15.30 15.70 14.50 14.60 14.7 43,112 118,413 106,725 Mar 20 15.10 15.30 14.75 14.90 14.9 28,004 88,885 79,382 Apr 20 15.30 15.55 15.05 15.15 15.2 4,181 24,428 22,366 May 20 15.60 15.80 15.25 15.40 15.35 1,208 18,865 18,719 Jun 20 16.00 16.20 15.75 15.75 15.75 2,270 11,533 11,795 Jul 20 16.10 16.25 15.75 15.75 15.85 160 5,260 5,197 Aug 20 16.10 16.30 16.10 16.15 16.05 1,719 1,635 814 Sep 20 16.45 16.45 16.45 16.45 16.25 5 5 0 Edit: gah, formatting is off, here's the link to volume and open interest for V2TX (expand Statistics tab) if you want to see it in a nicer format https://www.eurexchange.com/exchang...oxx-futures-and-options/VSTOXX-Futures-253604
I am surprised to see that your position size went from 2 contracts to 4 contracts. Do you calculate the value volatility of a contract in your system? The value volatility of a contract increases if the price suddenly jumps. So today's value volatility should be higher than yesterday's. Your system should then respond by scaling down the maximum position size. Is this implemented in your trading system?
Hi Yes, I use carry smoothing. I use a simple ewma with 'span' in days = {10,30,60,125}. V*X each get an equal allocation to those in my current, 'dumb', handcrafted weights, for a total of 16%. Relative carry has another 4%. Here's the full list: Code: FC VIX V2X Short bias 0.2 0.2 breakout320 0.286 0.286 mrinasset160 0.08 0.08 carry10 0.04 0.04 carry30 0.04 0.04 carry60 0.04 0.04 carry125 0.04 0.04 assettrend64 0.078 0.078 normmom64 0.078 0.078 momentum64 0.078 0.078 relcarry 0.04 0.04 Zeros are omitted. These are quite expensive markets, so I trade them quite slowly - notice the absence of the shorter momentum crossovers for example. Importantly then, I have much less carry than you (because I have a wider menu of signals to choose from), and it's smoothed a fair bit. Generally speaking the first contract in V*X is terrible (skew, kurtosis and unpleasant carryness), the second is a little better and so on. On the downside, the liquidity gets worse as you correctly identified. But the average rolldown, and therefore average total return, is also better at the very front (essentially you are getting paid a little higher risk premium for more horrible risk). For me the sweet spot is the second contract (so I'm currently rolling into March right now). For a relatively undiversified system however, you're probably better off reducing the exposure to negative skew to more tolerable levels by moving further out on the curve. As @HobbyTrading pointed out, the vol scaling should also have affected your position. I'm in a bit of a bad place at the moment, without decent diagnostics for my current system and out of date data for my new system, or I'd show you some nice plots. Instead here's a printout of trades done in the vol and equity markets since the 23rd January: Code: code contractid filled_datetime filledtrade filledprice 24145 AEX 202002 2020-01-27 10:18:56 -1 600.250000 24076 CAC 202002 2020-01-17 09:32:23 1 6080.500000 24094 CAC 202002 2020-01-21 08:08:03 -1 6001.500000 24139 CAC 202002 2020-01-27 09:16:00 -1 5909.000000 24181 CAC 202002 2020-01-28 10:20:00 -1 5872.000000 24172 KOSPI 202003 2020-01-28 01:06:32 -1 294.800000 24166 NASDAQ 202003 2020-01-27 14:47:02 -1 8980.750000 24187 SP500 202003 2020-01-28 14:16:38 -1 3256.750000 24121 V2X 202003 2020-01-24 14:21:27 -1 13.900000 24148 V2X 202002 2020-01-27 10:25:58 1 15.150000 24160 V2X 202002 2020-01-27 13:33:32 1 15.500000 24178 V2X 202002 2020-01-28 10:20:47 3 15.400000 24184 V2X 202002 2020-01-28 14:08:27 1 15.150000 24193 V2X 202002 2020-01-29 08:08:19 1 14.750000 24142 VIX 202002 2020-01-27 10:05:13 1 17.300000 I'm currently short 17 contracts of V2X, so I've gone from short 23 to short 17. That seems a fairly reasonable response to the spike given my comments about trading slowly. In VIX I've gone from -2 to -1. Discretization is clearly an issue here.... In S&P I've gone from long 1 to flat. GAT PS Drawdown is 5.7% at pixel time. I've lost ~2 weeks of profits, so not the end of the world
GAT and @HobbyTrading, thanks a lot for the replies! I do calculate volatility. I believe that in the Leveraged Trading book that is described as instrument risk, and is the same thing as price volatility in the Systematic Trading book. Basically, in the carry rule, I divide expected annual return percentage by instrument risk. It is computed as a standard deviation of last 25 days of returns. I just went back to look at it, and stddev goes from 1.8% just before the spike (on 1/24) to 2.5% after the spike. Instrument risk goes from 29.47% on 24th, to 38.93% on 27th. The shift from short to a long position can be explained by the fact that the carry and traded contract reversed prices, we are usually in contango with V2TX, but for 1/27, "spot contract" (february) went above the traded contract (march), so carry forecast went positive. From what I can see, that, combined with the fact that I have no carry smoothing and I have 50% weight on the carry rule results in an extreme change. I'll take the advice here and move to a contract further out and reduce exposure to V2TX as quick measures, and then carry smoothing later. I also might try moving to using EWMA to compute price volatility. GAT suggested that as the alternative to stddev of percentage returns in Systematic Trading (Appendix D if folks are interested) and that would probably help here as well as it would put more weight on the recent data.
mr globalarbtrader, not familiar with a position sizing method by that nomenclature. Would it be possible to provid a link or a clue? Thx