Thursday, April 21, 2011

More on VIX and Bollinger Bands


If things stay where they are today, the VIX will close below it Bollinger Band (20,2) for the second consecutive day. I've looked into this before when it closed below this Bollinger Band for just one day -  see it here. That study indicated an increase in volatility was imminent. How does two days below look?


Buy when VIX when it close below Bollinger Band (20,2) for 2 days ; sell 'n' days later. $10,000 per trade; 1995 to present.
Exit n
 days
Net Profit
# Trades
# of winners
% of Winners
Max. Trade % DD
Avg % P/L
W. Avg. Profit
L. Avg. Loss
Profit Factor
Payoff Ratio
1
5,883.52
23
14
60.87
-4.90
2.56
      563.06
(222.15)
3.94
2.53
2
13,073.79
22
16
72.73
-7.69
5.94
      921.50
  (278.36)
8.83
3.31
3
15,354.71
21
16
76.19
-7.86
7.31
  1,079.36
(383.02)
9.02
2.82
4
19,944.38
20
15
75.00
-13.09
9.97
  1,456.77
(381.44)
11.46
3.82
5
21,776.20
20
18
90.00
-15.67
10.89
  1,272.59
(565.22)
20.26
2.25

[This table is for presentation purposes only; you can't trade the actual index. Turn to Futures or ETF's]

Clearly less instances, but similar results none-the-less: Volatility will most likely go up next week.
It's not much different than just one day under. Just something for us to think about.
Here is the SPY performance:


Buy SPY when VIX closes below Bollinger Band (20,2) for 2 days ; sell 'n' days later. $10,000 per trade; 1995 to present.
Exit n
 days
Net Profit
# Trades
# of winners
% of Winners
Max. Trade % DD
Avg % P/L
W. Avg. Profit
L. Avg. Loss
Profit Factor
Payoff Ratio
1
        (422.51)
23
12
52.17
-2.34
-0.18
        63.86
(108.08)
0.64
0.59
2
         (809.43)
22
11
50.00
-4.07
-0.37
        83.61
 (157.20)
0.53
0.53
4
      (2,041.13)
20
7
35.00
-6.55
-1.02
        99.90
 (210.80)
0.26
0.47
3
      (1,310.50)
21
10
47.62
-4.12
-0.62
        82.69
 (194.31)
0.39
0.43
5
      (2,123.09)
20
4
20.00
-6.55
-1.06
      161.01
(172.95)
0.23
0.93


 Anything is possible with this market, so trade carefully.