The First Shall Be Last and The Last Shall Be First

A common theme in my writing recently has been not being married to any one specific set of trading rules. It’s very easy to get excited about an amazing recent performance (such as the Brute Force VRP strategy in October), but over the long-term, I’m sure that a holistic approach that considers many different concepts will win the day.

This year has been a perfect illustration of that. Every month I produce a graph like the one below showing the year-to-date performance of all of the simple strategies that we’ve blogged about.

20141106.01

Read about test assumptions, or get help following these strategies.

That’s a lot of information to digest, so in the next graph I’ve stripped out just the best performing strategy YTD in blue (Brute Force VRP), and the worst performing in grey (DFTB’s StDev).

At near-term peaks at points #1 and #2, DFTB’s StDev was the best performing strategy of all of those we track, while the Brute Force VRP strategy was either the absolute worst, or somewhere very close.

Fast-forward to point #3 where we find ourselves today, and all of that has been flipped on its head. DFTB’s StDev is now at the bottom of the barrel, and the Brute Force VRP strategy is the tippity-top performer.

20141106.02

Here’s the rub though, there really is no way to know in advance which of these concepts is going to outperform next because in all trading, but especially when trading instruments as volatile as VIX products, there’s an element of randomness and the luck of the draw.

That means that the best way to ensure future success is to employ a bit of balance, to use a more holistic approach that draws from many different concepts.

The epic shift in the graph above has played out time and time again historically. That’s why you consistently find me staying very Zen about both a strategy that has performed very well recently and one that has performed poorly. Because the best strategy for the future, given what we know today, probably lies somewhere in between the two.

Click to see Volatility Made Simple’s own elegant solution to the VIX ETP puzzle.

Good Trading,
Volatility Made Simple

Posted in Strategy Mechanics.