Chart Examples

Top  Previous  Next

 

We have included several screen shots of example charts with commentary. The charts were reduced to a bare minimum for the sake of clarity. They do not use hindsight or forward reference making them suitable for trading. The returns reported do not account for transaction costs or slippage, but because of how infrequently the models trade and how liquid the instruments traded are, transaction costs and slippage should be minimal assuming a decent sized account.

 

The charts can be found in the NeuroShell Trader 6\charts\Noxa\Noxa AME folder.

 

 

Click to expand/collapseTiming the Volatility Index®

For the uninitiated, the CBOE Volatility Index®, or VIX, is a measure of risk based on the S&P 500. It is an annualized number that represents what traders think the movements in the S&P 500 are going to be in the near term. For example, a reading of 50 means that 50 /12 = 4.2% is about the range traders are anticipating the S&P 500 to trade in over the next 30-day period.

 

 

The Rationale

The VIX forms mean-reverting patterns that are highly predictable,

The VIX index can't be traded directly but there are Exchange-Traded Products or ETPs available that are designed to track the VIX and that can be traded throughout the day just like a stock,

The VIX and ETPs are so well correlated that what works on one works on the other.

 

 

The Strategy

Take short-term positions (long/short) in S&P 500 ETPs by timing the VIX.

Buy/short at the next open after AME applied to the VIX has crossed above or below the zero line:

Buy long:

VIX ETPs long entry

 

Sell short:

VIX ETPs short entry

 

Note three things:

The Input Series is set to the VIX meaning that the buy/sell signals are obtained from the VIX itself as opposed to the instrument being traded.

The Window parameter has been set to 16 during a Calibration step. A description of this step is given later in this section.

The Negative Flag has to be set to 0 or 1 whether there is positive or negative correlation between the instrument being traded and the VIX.

Case of a positive correlation: set Negative Flag to 0

VIX ETPs, positive correlation

 

Case of a negative correlation: set Negative Flag to 1

VIX ETPs, negative correlation

Note the strong correlation between the ETPs and the index.

 

The calibration step

The Window parameter is set during this calibration step.

Timing the VIX is easy

 

In the graph above we have assumed we could buy/short the VIX index at the next open when AME crosses above or below the zero line. As you can see in the bottom panel, this strategy would have put up impressive numbers: an hypothetical 66.5% profitable trades with about 1 trade per week over the entire 5-year test period (see chart "AME #300 Timing the VIX index.cht").

The entry rules

Buy long:

Timing the VIX long Entry

 

Sell short:

Timing the VIX short Entry

 

Note that the Window parameter is set to optimize to the same value for both the long and short rules.

 

Paper Trading

Five years of data are hold out for testing purpose,

The return on Trades is maximized.

 

The results

The optimized value for the Window parameter can be found in the Trading Strategy Analysis wizard under the "Trading Rules" tab as shown below:

Timing the VIX, Result

 

 

Zooming in on the buy/sell signals:

Timing the VIX, signals

 

 

Detailed Analysis (averaged out over 5 years paper trading):

 

Long & Short

Short only

Long only

Annual Return

209%

118.7%

90.3%

% Profitable Trades

66.5%

62.4%

70.7%

Average Trade Span

5 bars

6 bars

5 bars

 

 

 

Maintenance

Maintenance should be minimal. Window = 16 has been a good value since 1994; AME was able to produce consistent returns over the entire 5-year test period and did an excellent job at sidestepping the 2008 bear market. More importantly, AME was able to handle well the VIX new formulation that took place in 2003.

After you recalibrate, make sure you reset the Window to its new value in the trading rules.

You can recalibrate by simply re-optimizing the chart "AME #300 Timing the VIX index.cht":

 

Click to expand/collapse

 

 

In the next window that opens, click No to start optimizing from the beginning:

 

Click to expand/collapse

 

 

Get away from thinly traded ETPs

The success of the strategy depends on the ability of the ETPs to track the index. However, when the ETP becomes illiquid for example, it looses it's ability to correctly track the VIX.

To illustrate, here is a chart of Barclays Long B Leveraged S&P 500 TR ETN (BXUB). As you can see in the bottom panel, the trading volume dropped sharply end of 2011, so did the equity curve.

ETN BXUB from VIX looses its ability to track

See chart "AME #320 BXUB from VIX.cht".

 

 

 

Equity ETFs

An Exchange Traded Fund, also known as an ETF, is a security that tracks an asset or an index by holding the actual components of the index. One of the most widely known ETFs tracks the S&P500 index and trades under the symbol SPY. In recent years, ETFs have grown in popularity. ETFs appeal to investors mostly because they offer all the diversification of an index fund and can be traded just like a stock throughout the trading day.

 

SPDR S&P 500 (SPY)

AME $301 SPY from VIX.cht

 

Click to expand/collapse

 

Long &

Short

Long

only

Short only

Annual Return

28.8%

15.1%

13.8%

% Profitable Trades

63.3%

69.3%

57.1%

SPDR S&P 500 Growth ETF (SPYG)

AME #302 SPYG from VIX.cht

 

Click to expand/collapse

 

Long &

Short

Long

only

Short only

Annual Return

18.5%

11.8%

6.7%

% Profitable Trades

62.6%

67.9%

57.4%

ProShares Short S&P 500 (SH)

AME #303 SH from VIX.cht

Click to expand/collapse

 

Long &

Short

Long

only

Short only

Annual Return

27.3%

9.4%

17.8%

% Profitable Trades

62.3%

55.3%

69.3%

iShares S&P 500 Index (IVV)

AME #304 IVV from VIX.cht

Click to expand/collapse

 

Long &

Short

Long

only

Short only

Annual Return

28.8%

15.1%

13.7%

% Profitable Trades

63%

68.7%

57.4%

iShares S&P 500 Growth Index (IVW)

AME #305 IVW from VIX.cht

Click to expand/collapse

 

Long &

Short

Long

only

Short only

Annual Return

26.6%

15.5%

11.1%

% Profitable Trades

64.4%

69.3%

59.6%

Guggenheim S&P 500 Pure Value (RPV)

AME #306 RPV from VIX.cht

Click to expand/collapse

 

Long &

Short

Long

only

Short only

Annual Return

29.4%

16.5%

12.9%

% Profitable Trades

55.8%

60.7%

50.9%

Guggenheim S&P500 Pure Growth (RPG)

AME #307 RPG from VIX.cht

Click to expand/collapse

 

Long &

Short

Long

only

Short only

Annual Return

21%

14.2%

6.8%

% Profitable Trades

60.6%

65.5%

55.8%

 

 

Leveraged Equity ETFs

These ETFs usually come with the name “Ultra” and if you look into their descriptions they seek to generate a return that is a multiple of the index's performance. The ProShares Ultra S&P500 (SSO) for example is an ETF designed to return twice the S&P 500. It does it not by actually borrowing money, but by using a combination of derivatives. However, the effect is the same, and if the S&P 500 returns 1%, the SSO should return about 2%.

 

ProShares Ultra S&P500 (SSO)

AME #308 SSO from VIX.cht

Click to expand/collapse

 

Long &

Short

Long

only

Short only

Annual Return

52.4%

26.7%

25.7%

% Profitable Trades

62.3%

67.9%

56.7%

ProShares UltraPro S&P500 (UPRO)

AME #309 UPRO adjusted from VIX.cht

Click to expand/collapse

 

Long &

Short

Long

only

Short only

Annual Return

71.6%

58.9%

12.7%

% Profitable Trades

65.3%

75.6%

55.2%

ProShares UltraShort S&P500 (SDS)

AME #310 SDS from VIX.cht

Click to expand/collapse

 

Long &

Short

Long

only

Short only

Annual Return

57%

19.9%

37.1%

% Profitable Trades

63.7%

56%

71.4%

ProShares UltraPro Short S&P500 (SPXU)

AME #311 SPXU adjusted from VIX.cht

Click to expand/collapse

 

Long &

Short

Long

only

Short only

Annual Return

73.3%

8.3%

65.1%

% Profitable Trades

64.7%

50.6%

79.1%

Guggenheim 2x S&P 500 (RSU)

AME #312 RSU from VIX.cht

Click to expand/collapse

 

Long &

Short

Long

only

Short only

Annual Return

50.8%

26.2%

24.6%

% Profitable Trades

64.1%

67.9%

60.3%

Guggenheim Inverse 2x S&P 500 (RSW)

AME #313 RSW from VIX.cht

Click to expand/collapse

 

Long &

Short

Long

only

Short only

Annual Return

60.8%

23.4%

37.4%

% Profitable Trades

64.1%

58.8%

69.5%

 

 

Low Volatility ETFs

Low volatity ETFs are portfolios that are invested in the steadiest stocks. The PowerShares S&P 500 Low Volatility Portfolio (SPLV), targets the 100 components of the S&P 500 with the lowest historical volatility.

 

PowerShares S&P 500 Low Volatility (SPLV)

AME #314 SPLV from VIX.cht

 

Click to expand/collapse

 

Long &

Short

Long

only

Short only

Annual Return

22.5%

17.1%

5.4%

% Profitable Trades

67.6%

74.3%

61.1%

 

 

High Beta ETFs

High Beta ETFs target high beta stocks. Higher beta means greater sensitivity to broad movements in equity markets, meaning that the ETFs are expected to include a significant shift towards volatile stocks.

 

PowerShares S&P 500 High Beta (SPHB)

AME #315 SPHB from VIX.cht

 

Click to expand/collapse

 

Long &

Short

Long

only

Short only

Annual Return

83%

35.6%

47.4%

% Profitable Trades

74.6%

77.1%

72.2%

 

 

Volatility ETNs

Exchange-traded notes (ETNs) are debt securities by which the issuer promises to pay a return based on the index’s performance. They trade throughout the day like a stock. Today, ETNs have become popular investment tools for investors who are trying to get exposure to the returns of specific asset classes that could not be set up in an Exchange Traded Fund (ETF).

 

VelocityShares Long VIX ST ETN (VIIX)

AME #316 VIIX from VIX.cht

Click to expand/collapse

 

Long &

Short

Long

only

Short only

Annual Return

81.3%

11.7%

69.5%

% Profitable Trades

63.3%

51.1%

75.6%

VelocityShares Daily 2x VIX ST ETN (TVIX)

AME #317 TVIX from VIX.cht

 

Click to expand/collapse

 

Long &

Short

Long

only

Short only

Annual Return

218.3%

50.1%

168.2%

% Profitable Trades

65.6%

53.3%

77.8%

iPath S&P 500 VIX MT Futures ETN (VXZ)

AME #318 VXZ from VIX.cht

 

Click to expand/collapse

 

Long &

Short

Long

only

Short only

Annual Return

36.3%

7.1%

29.2%

% Profitable Trades

59.7%

53.5%

66%

UBS E-TRACS 5Mo S&P 500 VIX Futures ETN (VXEE)

AME #319 VXEE from VIX.cht

Click to expand/collapse

 

Long &

Short

Long

only

Short only

Annual Return

65.1%

13.7%

51.3%

% Profitable Trades

44%

40%

48%

Click to expand/collapseTiming the S&P 500 index®

The S&P 500 (^GSPC) is an index of 500 leading stocks chosen to reflect the risk/return characteristics of the large-cap US equities market.

 

 

The Rationale

Indexes such as the S&P 500 are groups of similar stocks that represent a particular segment of the market. The similarities make returns more predictable and stable than the constituent stocks taken individually,

There are Exchange-Traded Products or ETPs available that track the index well and that can be traded just like a stock.

The S&P 500 and ETPs are so well correlated that what works on one works on the other.

 

 

The Strategy

Take short-term positions (long/short) in S&P 500 ETPs by timing the S&P 500 index.

Buy/short at the next open when AME applied to ^GSPC crosses above or below the zero line:

Buy long:

GSPC ETPs long entry

 

Sell short:

GSPC ETPs short entry

 

Note three things:

The Input Series is set to the ^GSPC meaning that the buy/sell signals are obtained from the S&P 500 index itself as opposed to the instrument being traded.

The Window parameter has been set to 14 during a Calibration step. A description of this step is given later in this section.

The Negative Flag has to be set to 0 or 1 whether there is positive or negative correlation between the instrument being traded and the index.

Case of a positive correlation: set Negative Flag to 0

GSPC ETPs, positive correlation

 

Case of a negative correlation: set Negative Flag to 1

GSPC ETPs, negative correlation

 

The calibration step

The Window parameter is set during this calibration step.

Timing the ^GSPC

 

In the graph above we have assumed we could buy/short ^GSPC index at the next open when AME crosses above or below the zero line. This strategy would have put up good numbers: an hypothetical 59.8% profitable trades with less than 1 trade per week over the entire 5-year test period (see chart "AME #400 Timing the S&P500 index.cht").

The entry rules

Buy long:

Timing the ^GSPC long Entry

 

Sell short:

Timing the ^GSPC short Entry

 

Note that the parameters are set to optimize to the same values for both the long and short rules.

 

Paper trading

Five years of data are hold out for testing purpose,

Net Profit is maximized.

 

The results

The optimized value for the Window parameter can be found in the Trading Strategy Analysis wizard under the "Trading Rules" tab as shown below:

Timing the ^GSPC, Detailed Analysis

 

 

Zooming in on the buy/sell signals:

Timing the ^GSPC, zoomed in

 

 

Detailed Analysis (averaged out over 5 years out-of-sample):

 

Long & Short

Long only

Short only

Annual Return

21.8%

11.3%

10.5%

% Profitable Trades

59.8%

66.3%

53.3%

Average Trade Span

8 bars

10 bars

6 bars

 

 

 

Maintenance

Maintenance should be minimal. Window = 14 has been a good value since 1992; AME was able to produce consistent returns over the entire 5-year test period and fared well during times of real market stress, like 2008. We expect it to continue moving forward.

After you recalibrate, make sure you reset the Window to its new value in the trading rules.

You can recalibrate by simply re-optimizing the chart "AME #400 Timing the S&P500 index.cht":

 

Click to expand/collapse

 

 

In the next window that opens, click No to start optimizing from the beginning:

 

Click to expand/collapse

 

 

Equity ETFs

An Exchange Traded Fund, also known as an ETF, is a security that tracks an asset or an index by holding the actual components of the index. One of the most widely known ETFs tracks the S&P500 index and trades under the symbol SPY. In recent years, ETFs have grown in popularity. ETFs appeal to investors mostly because they offer all the diversification of an index fund and can be traded just like a stock throughout the trading day.

 

SPDR S&P 500 (SPY)

AME #401 SPY from ^GSPC.cht

 

Click to expand/collapse

 

Long &

Short

Long

only

Short only

Annual Return

16%

8.5%

7.5%

% Profitable Trades

57.5%

64%

51.1%

Vanguard Extended Market Index ETF (VXF)

AME #402 VXF from ^GSPC.cht

 

Click to expand/collapse

 

Long &

Short

Long

only

Short only

Annual Return

23.6%

14.6%

9%

% Profitable Trades

55.9%

59.6%

52.2%

iShares S&P 500 Index (IVV)

AME #403 IVV from ^GSPC.cht

Click to expand/collapse

 

Long &

Short

Long

only

Short only

Annual Return

14.5%

7.8%

6.7%

% Profitable Trades

57%

62.9%

61.1%

 

 

 


 

© <2012> <Noxa Analytics, Inc.>. All rights reserved.


Noxa-AME Home Page ι Buy License ι Welcome to our Blog ι Ask your question