Systems That Pick One Direction Each Morning

There are a few systems that pick a market direction each morning. They buy at the open close out end of day or the next morning. Anyone have any luck with these systems?

Many of them are vix or gold systems and many have started to fail in the last few weeks.

I find these systems to be dangerous, while some may argue algos are the way to go, when the signal is wrong and it sits on a losing trade all day the loss can get huge after a few wrong days.

Hi TT3,

We trade two of those systems. While the positions are intraday (the purpose of only trading intraday is to avoid overnight risk), the strategies are meant to be long-term in nature. Thus, considering them only over a few week period (especially for volatility strategies that tend to be volatile in nature) is misaligned with the intent of the strategy.

We accept that short-term drawdowns will inevitably occur from time-to-time. In exchange, we’re able to capture long-term expected value.

Hope this helps.

Best of luck!

I am not familiar with the systems you mentioned, but in general algorithmic trading doesn’t have to be done that way. Automated systems can use stops or any other kind of exit rules just like human traders do.

Gal is correct. algos can be made to switch direction intraday. These systems that stay one direction will start to fail soon as many have already started.

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@TT3 I agree with your comments. Intraday risk of volatility ETPs is actually greater than overnight risk if you don´t use stops. I find this rather intuitive to understand as the big institutional traders don´t trade in the middle of the night. They need liquidity so the real moves of the S&P500 typically occur during the trading day. Since the index is the base of option pricing which determine VIX-Future movement which determine volatility-ETP movement it is important to acknowledge the actual character of the market.

The whole talk about overnight risk is a good fairy tail to let people buy short term puts as hedge imo. My analysis of actual historical data tells me that overnight risk is dwarfed by intraday movements and weekend-risk and produces significantly more comissions + slippage on top.
However, overnight risk in volatility products can be greater than many people could stand. Deleveraging is the key for long term success here.

Following these thought´s I designed my volatility strategy to trade 1 time per week, use a stop loss and close before the weekend. It´s still very jung but matches my expectations coming from the backtest in terms of execution, slippage and general behavior. if you want to check it out or set it on your watchlist you find it here:

I should add that our intraday strategies use intraday stop-losses.

With an intraday strategy, you’ll never wake up being down over 20% like many people did during Brexit, or 25% like we just saw on Monday (if you were long vol). Similar events will inevitably happen again and again in the future.

Absolutely, those events will happen again and again. Though my point stays valid that intraday strategies without stops like mentioned in the OP contain a higher level of risk than strategies with overnight risk that use stops. The vola crash on monday is a typical weekend risk and probably caused by the election results in France on Sunday. So I wouldn´t count it as overnight risk anyways.

With proper position management you´ll never wake up being down 20% despite an unforseen event either. I´m pretty sure there is more than 1 viable approach of trading volatility. :wink:

Ah, I missed the “without stops” qualifier.

“I´m pretty sure there is more than 1 viable approach of trading volatility.” - Yep, completely agree!

Best of luck to you and your subs!

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To each one’s own. My Battle Axe volatility strategy runs full throttle, no finesse, no stops, no hedges ( ). And it is running TOS from my IB account, but I don’t have enough trades to make is show TOS yet. I don’t expect many subscribers right away (I just got my first), and I won’t pass some grid filters, but I’m here for the long run, switching between VXX & XIV daily. The way I see it is that Battle Axe tries to maximize returns while managing drawdowns ONLY via having really good signals. Yes, Battle Axe (in backtesting and personal trading under development) would have been down 38% at the Brexit, but at the same time recovered from that DD in under 10 weeks and has more than doubled since then, with a post-Brexit MDD of 20%. Long term… do you want backtested results under 100% CAGR with drawdowns limited to ~20%, or backtested results over 200% CAGR with drawdowns less than 40% in a system that can really recover quickly? Investors can use the Leslie Gray approach and limit their absolute drawdowns by scaling appropriately. Like I said, Battle Axe isn’t everyone’s cup of tea. I’m running it in my Roth IRA so that I never have to pay taxes on all my gains :slight_smile:

Sorry, I really kinda posted this in the WRONG thread, since I do not remotely run intraday only as discussed. Consider this only a counter-argument for why some strategies don’t run intraday only (and miss most of the big up day in XIV on Monday, where it gapped up about halfway to its close).