One of the most important steps in the development process of any trading strategy is the use of a historical data. The data is telling us how the market behaved and therefore relying on the data is the heart of the development process.
The data that feeds most of the volatility strategies has been in place since 2009. Data from previous years is only partial or calculated and in my opinion reliance on it is undesirable.
This year, unlike all previous years, it was difficult for these systems to produce a good return. The question that must be asked is whether it is no longer possible to profit from volatility as it used to be and if the strategies will come back sooner or later and will show good results.
I previously wrote here that the volatility has changed completely since the crisis in February this year. It has been changed in a way that we never seen since 2009.
I recently found that Morgan Stanley checked and found that the volatility this year, at least until July of this year, was the highest since 2008.
"2018 is on track to be the most volatile since the financial crisis, Morgan Stanley analysts wrote in a note published Monday."
Morgan Stanley analyst added these:
Surprises (large moves relative to expectations) are becoming more common across asset classes.
Tightening monetary policy and geopolitical risks may be helping boost this year’s uptick in volatility.
The reminder of the year is set to be even wilder because of the US. midterm elections.
Morgan Stanley analyst was right.
What is the meaning for us as a volatility traders?
We understand the reason why the trading strategies developed based on data from 2009 onward, are not good enough for 2018.
As a developer this is a challenge to identify the new volatility environment asap, understand that we are in a new game and make the necessary changes in the trading systems in order to adapt them to the new environment, first time in the last 10 years.
Today, all VIXTrader systems are adapted to the new volatility environment.
The meaning is less trades and better money and risk management.
As usual, my first rule is not to lose money!
We are in Cash position in the last 2 weeks…
If we keep this rule, the profits will eventually come.
Developer, what do you think about this special year? How did you handle the volatility?