This is an example of using 101 Trading Ideas to find different ways to think about extreme events.
101 Trading Ideas:
#20 Trade the next move, also Inversion from Farnham Street Blog Models
Instead of trying to time the current move, wait for the next one; instead of trying to catch a falling knife, catch a bouncing one
Start at the end of the current move and work forwards from there.
From Triggered Idea to Trading Strategy:
What happens after an extreme in VIX is followed by a pause. Think of the pause as the end of the current move.
Long Rules (reversal strategy, always in market)
20 days ago VIX closed > 35
then buy es
none, long only
After 40 days
w/l: 62%, 5 wins of 8 trades
avg trade: 42.13 pts
profitable all years except 2008
A rough draft, alpha hunt idea. Not a complete strategy.
There is risk in trading. Most strategies degrade when moving from in-sample backtests to out-of-sample live markets. Be careful.