Welcome to NexusFi: the best trading community on the planet, with over 150,000 members Sign Up Now for Free
Genuine reviews from real traders, not fake reviews from stealth vendors
Quality education from leading professional traders
We are a friendly, helpful, and positive community
We do not tolerate rude behavior, trolling, or vendors advertising in posts
We are here to help, just let us know what you need
You'll need to register in order to view the content of the threads and start contributing to our community. It's free for basic access, or support us by becoming an Elite Member -- see if you qualify for a discount below.
-- Big Mike, Site Administrator
(If you already have an account, login at the top of the page)
*** Warning: I'm gong to talk about something I know almost nothing about. ***
(At least I know it this time. I don't always. )
VIX is a measure of what is called "implied volatility," which is very different from "historical volatility," the kind of thing we generally think of volatility as being. In other words, if you look at how prices have moved, that kind of volatility (which is what ATR addresses) is "historical" volatility. It's what has happened.
VIX is an attempt to predict near-term (30 day) future volatility based on current option pricing. "Volatility" is a component of option pricing models, like Black–Scholes. If you plug in the current price of options and the other components, you can solve it for the volatility that is implied by the other values.
For example, what should happen to option prices if volatility is expected to rise? They should go up, because it's uncertain what will happen. This is the connection of expected volatility and option pricing, and why it's a part of valuation models. If you know all the other components of the model, including price, you can derive what the expected future volatility has to be, at least according to the formula.
I half-way remembered some of this, so I thought I would just go to Wikipedia and get a simple explanation, but there seems to be a law that says anything theoretical about option pricing has to be carefully written in a way to make it unintelligible. You are welcome to try your luck with it, but you will need some luck, I think: https://en.wikipedia.org/wiki/VIX
Anyway, I think that what I just wrote is correct to a fair approximation.
Is VIX useful? It reflects the opinions of presumably knowledgeable options traders, since implied volatility is baked into the option price (to the extent that the option pricing model is correct.) I believe that the way people use it that a high VIX means uncertainty about the future, which is why it is called a "fear index." I have never been sure if it's a predictive or a reactive measure, in terms of what the market will do now. (If it is rising, does this tell you the market will go down, or is it rising because the market has gone down?) Dunno.
But I said I didn't know what I was going to talk about, and I don't. I do have at least a slender grasp on the difference between VIX-type volatility (a prediction based on option pricing) and ATR-type volatility (what has actually happened to price.)
@bobwest, okay, you had me rolling with that line. This is why I never pursued options writing. It is all alchemy to me and I was never good in Potions class.
I know some people use VIX in their trading. The VX (the options future which I trade) reflects the VIX pretty closely from what I observe. I have toyed with it a little just for general amusement, but I haven't found VIX useful, though I don't work with ES or S&P 500.
The VX that I trade has contracts for every month of the year. So our 'witching' day happens once a month. Technically the witching day, or contract expiration if you will, is tomorrow, but the effects for the VXK19 (May 2019 expiration) were felt today. It was a meh day and there wasn't much movement, at all. That was on the May contract.
The June contract, which is receiving about the same amount of volume, was only a little more exciting, but I will start trading that tomorrow.
Today's results:
-$214 net loss
A lot of back and forth trades
5 round trips
Missed on minor entry because the price wasn't hit
What I liked:
My strategy worked, with no real fails
What I didn't like:
This is not trading related, but I had some external interruptions that made trading difficult
Tradestation bombed on me again (see the picture below)
This should have been a chart (a workspace, they call it). This is what I have to deal with using Tradestation. Fortunately it is working on my other PC.
That is all I have, sorry if it is meh like the market. I expect tomorrow to be hella more exciting....I just feel it.
Today was a pretty busy day outside of trading, so I just set my strategy up in sim and let it run. Today was just a little less 'meh' than yesterday and the VX just drifted for most of the day.
My indicator visually shows two cross-overs, which should have resulted in a reversal (exit short, enter long; then exit long, enter short). But..... that didn't happen when looking at the data (nor did my strategy detect them). So, foolish me, I figured that the orders were just missed. Wrong.
What you see is not what you get, apparently. I checked my strategy report, which would have more accurately shown exit and re-entry. Nope, they were not identified by my strategy. Then I checked the actual values..... there was no cross-over when I evaluated each bar. In other words, what I see on the chart does not match the underlying data.
What the frack?
I will chalk this up to Tradestation weirdness. I am glad I'm not a chart trader or I would be pretty upset. The good thing is that my strategy would have stayed in the trade. I don't know why it did not paint on the chart properly. I will have to try this on another PC to see if the problem exists on both instances of TS. I will try to post some pictures or video to explain what I am seeing.
Without my early exit, my p/l would have been +$248.
Today's results (sim):
+$48
1 short trade.... meh
What I liked:
I was on full-auto today
Strategy worked flawlessly in sim
Got a haircut, ran some errands
I didn't worry
What I didn't like:
The indicator failed, for the first time that I know of.
The fact that I intervened by exiting prior to identifying the issue with the indicator
In general, I like trading how I'm trading now. Allowing the automated strategy to enforce my trading rules frees me in a great many ways. Although I have some concern regarding Tradestation, I think I can work with it for now while I finish other activities that need closure.
I think tomorrow I will go live with this strategy and see how it performs. I have had four days where it has performed as designed. Let's see!
This is going to be a short post, as it is late. I went live with my strategy today and it worked, for the most part. The VX was pretty wild today. Here is what my strategy report shows:
8 round trip trades
-$219 net loss (what could have/should have been)
Actually not bad, considering the wild volatility. However, here is what I ended up with:
+$334 net profit
The reason was mainly that I did some discretionary trading on the YM alongside the VX, basically using the same methodology, but manually. Obviously it works, but I am not really in this to day trade.
There were a couple of entries on the VX that were missed, but that is accounted for in the strategy report. So tomorrow, we keep trading live and see where this strategy takes us.
If you have read this journal much, or my old one, you will know that I now trade the VX, primarily. This particular instrument does not allow for market orders, only limit orders. These constraints have made it difficult to automate a strategy.
However, the one very important thing that I've learned trading the VX is this: using limit orders. The main issue with market orders is the slippage factor. Of course, there is the downside of limit orders, in that they don't always get filled. Aside from that, when I am trading another instrument, I have found using limit orders has been crucial to avoid slippage. I have been able to effectively cover commission, hit most of my orders (80% of the time) and meet my trading goals for an individual trade. At this point, I look at a market order as a fail-safe, last resort tool.
That's all for now. I'll post my end of the day results at... you know... the end of the day.
My strategy would have produced +$304 net profit, if all orders were filled (about 10% are not filled, as the limit price is not met)
All-in-all it was a good week, in that my strategy mostly worked in both sim and live. There were some missed trades, but nothing to boo-hoo about. My discretionary trades helped keep me in the black, but I would rather not day trade.
I missed two really good discretionary trades today, because I was distracted (first missed trade) and then I stepped away to eat lunch (second missed trade). Again, I don't want to do discretionary trading, but I had some separate goals tied to that (primarily catching up my account and covering monthly data fees).
My strategy:
The strategy worked. The two things that I liked were:
I have to go back and do some additional backtesting and do another round of walk-forward optimizations. I want to make sure my expectations for the strategy are realistic.
I hope all of you in the US have a safe Memorial Day holiday. See you again Tuesday!
I haven't posted in my journal this week, as I have been super busy with other things. I only traded Tuesday live, which was not a good trading day (strategy worked, but it was one of those bad days).
For the rest of this week, I did not run my strategy, not even in sim. I have other non-trading related work that requires my attention. I will try to update my journal later today with my week's results and what I have been working on, with the little time I have.
I have a couple of quick updates, but I don't have much time in the next two weeks to trade or update my journal. I will get right to it.
Last week:
Ran my automated VX strategy Tuesday, live
Total P/L: -$541 (live trading)
Execution of trades was near perfect, i.e. my strategy took all the trades it should have
5 trades, 4 losses, 1 win.... two of these were stop losses (-225 a piece)
My emotions were fine throughout, but I was disappointed at my strategy performance
Discretionary trading on the YM last Friday, +$941 in sim on three trades .... just testing some theories around movements and market psychology.
I pulled the plug on the VX strategy, and good thing I did. Last week would have been one of those weeks. By my strategy performance report, which now track pretty close to my live trading, I would have been down $2500 for the week. So it might have been one of those weeks or there is something fundamentally wrong with the strategy. I suspect that it was an outlier week. I need to spend some time on it, of which I have little. I was happy with Friday's results, even though they were only sim. I have taken similar live trades with good results. My YM trading habit supports my VX trading habit....
This week:
I will be traveling for a couple months, starting next week, so I am swamped with client (non-trading) work before I leave, tying up loose ends, etc. The thing right now is, to use a biblical reference, I cannot serve two masters, or in my case 3 or 4. I know that I cannot effectively trade or develop trading strategies while attending to other responsibilities. As a result, I have to set aside my trading activities, except for one.
My partner has developed a new strategy that appears to be promising. However, she needs a custom stochastic. I need to code this for her in the limited time I have, so I have to do that. Coding and talking about custom code is not exciting, but if I can get it working, then her system can be fully automated, which would be a first for her. The best thing is that it works on multiple markets. So hopefully I can get to it this week.
That is all I have. I may run my VX strategy in sim, just to see what would happen. I will pop in here to see how my fellow traders are doing.
I only have a few minutes this week, but I thought I would check in. I have not done any live trading this week, as I do not have the mental bandwidth to dedicate to trading.
My VX Algo system:
It appears to be busted, according to my strategy performance report. I'm not sure why, but it has been flat this month. It could just be a bad two week stretch.. I don't have time to spend investigating if the system has an issue or if it is just busted. Regardless, I will be traveling soon and probably won't have time to look at it prior to next week at the earliest.
Discretionary trading:
I did some discretionary trading on my sim account yesterday, just to keep up my skills. I only traded yesterday in two small windows of time (about 1 hour total). My main goal was to acclimate myself to trading larger lots (i.e. larger than one contract). It worked pretty well, considering that my setups were not ideal.
Sim results for Monday (11-Jun-2019):
Traded YM (Dow e-mini)
5 trades, 3 wins, two losses
+$1021
I've probably stated this before, but my plan is not to be a day trader. I have been able to use my day trading skills to help pad my account (both real and funny money accounts) and absorb losses from some of the system trading I've had.
I'll be on the other side of the pond by the next time I check in, probably next week. For now, best of luck in your trading!