Another technical trend-following strategy with volatility ETP. We use a short trend in VXX, determined by the crossing of simple moving averages.
Products that mimic VIX exhibit pronounced trends, but during periods of strong market declines, the strategy must quickly respond to explosive increases in volatility. Therefore, it is essential for strategies to use both lagging indicators (such as moving averages) and the current value of the index. And yes, considering the value decay of VXX-like instruments due to rolling costs, we prefer either to short them or to stay out of the market.
Strategy Rules
If VXX 5-day simple moving average (SMA) is bellow 15-day SMA and VXX is bellow 5-day SMA – short VXX. No position otherwise.
Strategy Performance
Test period: 2010 – 15 Dec 2023. Costs (brokerage commissions, slippage and borrow costs) are not included.
| Averaged Strategy | Benchmark: Short VXX | Benchmark: SPY | |
| Full Return | 3 596% | 5 850% | 549% |
| Annualized return | 29% | 34% | 12.95% |
| Max DD | -44% | -92% | -34% |
| Sharpe ratio | 0.75 | 0.42 | 0.70 |
