In order to get a decent sample size I decided to use the 1% gap level as my criteria in testing. Below I look at the daily performance numbers over the following week:
While the “% Wins” isn’t much worse than a coin toss on average, the poor W/L Ratio creates a negative expectancy. The bearish implications peak at 4 days across the sample. Not seen in the above table is that about 70% of all instances closed below their trigger price at some point in the following 3 days. This number increases to 89% when looking out 6 days.
3 comments:
Sing it, brother! Cha-ching!
Gap fillage!
The VIX study http://quantifiableedges.blogspot.com/2008/05/is-low-vix-short-trigger.html is in play here.
Quote:
"1) Short the S&P 500 when the VIX crosses from below to above the lower 10% envelope but remains below its 10-day moving average on a closing basis. 2) Exit the trade when the VIX closes above its 10-day moving average. Here you would have had 58 trades. The average trade would have made you about 7 S&P points and the total system gain, or S&P points lost, over the time period is 403.17 – a very substantial number."
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