How Bad Was 2018’s Volatility?

I have a Google Home in my bathroom that I play a morning routine while I shave, brush my teeth and get ready for the day. One step is to play The Indicator podcast from Planet Money. This morning they were talking about how “2018 was one of the most volatile years on record for the stock market.” Of course that caught my attention and I wanted to discover how they measured that. The volatility last year did not seem that bad given my trading since 90s. They mentioned the VIX and that had increased 157% from the previous year. But there was no other mention on how they came up with that statement. Well during my shower, I thought of all the “easy” ways they could have done it.

So how does 2018 volatility rank compared to all years since 1995?

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What to do when you find the Holy Grail

As I have mentioned in several interviews, I am always looking for new strategies. One area that fascinates me is stock options. Because it is difficult to get good data and to do backtests, I believe that there are good edges here to be found. A few weeks ago, I found myself with lots of time and having read presentations on options, I went into a testing frenzy.

After lots of work, I found a strategy that greatly exceeded my expectations. It seemed to be the Holy Grail. I ran the strategy by my trading buddy, Steven, and he thought it was great too. We were so excited!

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Stiffness Indicator Analysis

A reader pointed me the November 2018 issue of Technical Analysis of Stocks & Commodities to an article about a trend following indicator on S&P500 stocks. I liked the concept of the indicator and the article had backteted results and AmiBroker code. How could I resist not looking into this?

Little did I realize this would lead to Backtesting is Hard and How much does not having survivorship free data change test results?.

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Missing the best or worst market days

This morning I saw the chart on Ritholz.com of what happens when you miss the best X days of the market. I see a variation of this chart often and is used to argue why someone should not try and time the market. One concept I like to do is to invert. Meaning try the opposite idea and see what you get. What I rarely see is the chart if you missed the worst X days. Given it is a rainy Sunday morning here in Seattle and I had nothing better to do, I wanted to see that chart.

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Backtesting a Dividend Strategy

I was recently at a NWTTA presentation about the “S&P 500 Dividend Aristocrats” and how to trade these stocks. The strategy was part quantitative and part discretionary. It was popular talk with lots of good questions. People always seem interested in dividend stocks but for me they are just another stock with another reason to go up or down. I don’t like to dismiss ideas without testing. The strategy relies on fundamental data that I do not have access to but I have dividend data from Norgate Data. Would that be enough to create a strategy worth trading?

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StockCharts Technical Rank (SCTR) Indicator Analysis

Overall the last few months, I’ve had several consulting client’s strategy use SCTR for either a ranking or a filter. I finally got curious about the predictive ability of SCTR. How good is? I could find no information on how each of the ranking buckets did X days later on StockCharts.com. Maybe these results are hidden behind the paywall which I do not have access to.

I developed PowerRatings for TradingMarkets.com and understand how hard it is to make a ranking indicator that works. Is SCTR an indicator I should be using for medium to longer term strategies? What will the numbers to us?

9/19/2018: Make sure and read my follow up post, StockCharts Technical Rank (SCTR) Rotation Strategy, where the results are very different.

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Buy The Fear, Sell The Greed

The last few months, I have been busy doing research for Larry Connors’ new book, Buy The Fear, Sell The Greed. As always, it is fun and challenging to research for a book.

The book has seven strategies, trading both ETFs and stocks, with full rules and results. They are:

• RSI Power Zones: Long ETF strategy
• Crash: Short Stock strategy
• Vol Panics: Short VXX strategy
• VXX Trend Following: Short VXX strategy with over two month holds
• Trading New Highs: Long Stock strategy
• TPS: Long ETF strategy. Short ETF strategy
• Terror Gaps: Long ETF strategy.

My favorite strategy is Crash because it is very similar to the short strategy I trade now. Those trades are hard to take. For each strategy there are good example trades and explanations of what the market was doing then.

Get the first chapter by clicking here.

The book is coming soon to Amazon.

Good quant trading,

RSI2 (Relative Strength Index) Indicator Analysis

From my time with working with Larry Connors, I have become known for using the 2-Period RSI (RSI2) (Relative Strength Index) in my trading. I have written lots of blog posts that use it and I often use it in my personal strategies. One thing I like to do with indicators that I use frequently is a thorough analysis of them. Often, I find characteristics that I did not expect. Do you know about the RSI2 smile?

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Trading the Equity Curve – More Ideas

A couple posts ago, I looked at Trading the Equity Curve and found interesting results but nothing that made me decide this works for me. Using the equity curve to decide when to stop trading a strategy just sounds like it should work. But for me it is always about testing. I cannot count how often I thought an idea would help the results only to see them dramatically hurt them. Remember test everything!

I have been thinking about other methods to use to trade the curve. I also wondered maybe it is the strategies I tested against that caused less than stellar results. I am working on a SP500 weekly mean reversions strategy with an average hold of three months.  Maybe new methods of trading the curve or the different strategy will give better results.

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XIV Barbell Strategy

Well that was fun! I have been telling my trading buddy and anyone else that would listen that I fully expected XIV to open at zero one day. Now I did not expect it to happen so soon or the way it did. I trade a strategy that can be long XIV or long VXX or in cash. Because of the very likely possibility of XIV blowing up, I had constructed my portfolio using ideas from the barbell portfolio and this post, Taming High Return and High Risk. I was lucky and not in XIV when it did implode on Feb 6, 2018. Could a buy and hold trader of XIV made money even after the crash using these concepts? I was curious.

Barbell Portfolio

The idea of the barbell portfolio is that you put a small percentage of your assets (say 10%) in a very risky, high return asset like XIV. Then with the other 90%, you have it in something very safe like cash. Then at predetermined periods, you rebalance to be back to 10/90 allocation. These rebalance periods can be monthly, quarterly, semi-annual and yearly. What rebalance period you choose and the when can have a huge impact on your results.

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