Vol Panics

This strategy was taken from chapter 5 of Buy the Fear, Sell the Greed (2018) by Larry Connors.

Rules

When VXX is trading above its 5-period moving average and its 4-period RSI is > 70, enter a short trade.
(Optional Aggressive Entry) If VXX closes higher than the initial entry price at any point during the trade, enter a second short trade.
Exit the trade if VXX closes under its 5-period moving average.

Moving Average Period: The period used in the simple moving average calculation. (Default: 5)

RSI Period: The period used in the RSI calculation. (Default: 4)

RSI Smoothing: The smoothing used in the RSI calculation. (Default: 1)

Entry Threshold: The RSI value above which to enter the short trade. (Default: 70)

Enable Aggressive Entries: Whether to enter an additional aggressive trade if conditions are met. (Default: true)

Note that these backtests were performed on /VX (VIX futures) rather than on the VXX etf.

This is because the data feed I am using had very limited data available for VXX.

Hopefully these results demonstrate why you must be extremely careful when shorting volatility.