Back in 2012, I penned a friendly debunking of TradingMarkets.com’s RSI(2) mean-reversion strategy for trading the volatility ETN XIV.
The thrust of the post was that TM only tested the strategy back to the launch of XIV, which led them to write “they had never seen numbers like this in equity trading”, but had they tested the strategy back to 2004 (which we can do, and so can you), they would have found the strategy wasn’t nearly as solid as it first appeared.
Volatility Made Simple has posted a further follow up showing that TM’s strategy would have greatly improved if we only took those trades that agreed with the state of the VIX futures term-structure. From VMS:
I love this type of vertical blogging and thought I would repost here.
I would note however that this strategy has only begun to become successful in very recent history, most of which coincides with a tidy bull market when dip-buying strategies inherently do well.
For that reason, and just my general dislike for Martingaling such a potentially portfolio vaporizing instrument like XIV or VXX, I would still stay away from putting too much faith in this strategy.
Happy Trading,
ms
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