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Hi GAT, On average about how many contracts in total per day do you trade? Currently, I am trading about 6 contracts per day on a 240K account at 30% volatility across 14 instruments (excluding heavy roll days). Does that seem reasonable to you? Also, I was wondering if you might be updating...

Thanks for all the feedback. For now, I am going to take VX out of my instrument universe, until I understand it better.

Quiet1, what is the proper way to trade VIX, in your opinion? Are you saying that it doesn't belong in a slow-moving trend-following/carry system that trades once a day? Or are you saying that the exposure should just be tuned way down.

Interesting, truetype. So, if I have 130K in an SP500 ETF and 130K in my managed futures system, and I am willing to top off my managed futures with capital from my ETF, whenever necessary, then maybe running my futures account with this type of volatility is not problematic?

Great point H2O, I hadn't given that much thought. If those three years suddenly repeat themselves, I will have to move about 35k each year from my long-only etf acccount into my futures account, thus significantly tilting my exposure towards managed futures. That would be a tough pill to swallow.

I'll have to take a look at how to derive max historical drawdown. I am willing to accept the risk of that 77% drawdown that you noted, given the potential upside of +20% annual returns. I have my other capital in etfs, and all of this is meant for retirement which is maybe 30 years away.

I hope I'm not hijacking this thread. If so, please let me know. To summarize, I am using a lot of GAT's excellent open source code to run my system. I am using 8 instruments, with $130K, running at 30% volatility: Vix, Nasdaq, Leanhogs, GBP, Platinum, US2, Eurodollar, GAS_US. Here is the...

Thanks for that explanation, Quiet1. Based on what you say, I fear that I may have some error in my implementation of the system inspired by GAT's system, given that it has called for me holding 5 short VX on a $130k account at 30% volatility. I think I may have to liquidate, and revert to...

Hi Quiet1, can you please describe the serious risk I have taken? The only risk I can see that I've taken is potentially being overexposed to VX. Do you think that I am dangerously exposed to VX? Thanks.

I see, so you combine this fixed forecast of -10, with the variable forecasts you get from EWMAC, carry, and any other rules you have set up, to result in a short bias to volatility indices?

Good points, GAT. However, I believe that your system does not allow a positive forecast on the volatility indices. Is this correct? If so, could one argue that that represents overfitting based on past data, since you allow positive forecasts on all other instruments?

I've heard that some systems delay prices by a day, which is what made me float the idea. Can you elaborate on what you mean by "this"?

I wonder if it would make sense for us to delay ingestion of prices by a few days on the volatility indices since they have these large spikes that quickly reverse. For example, if I were short 5 contracts, then the Vix spikes by 10% on day n, my system does not react since the latest price it...

If I recall correctly, the forecast went from -20 to -12, dropping my position from -5 to -2. I think the position was so large since there hadn't been big spikes lately in the VIX, so the system was interpreting VIX as a low volatility instrument. I don't know if the VIX is workable in my...

I surfed the web a bit and it appears that the biggest daily spike in VX history is 64%. That would be a 37% hit to my account, assuming a max forecast. I could handle that, but maybe not much more. Or maybe I'm being naive. Maybe I should cut my VX exposure in half to be safe.

I was short 5 VX contracts the other day with a max forecast of -20, when I had my worst daily loss, when VX spiked. I am less diversified than GAT, trading only 8 markets, but my account is much smaller at $130K. My volatility is at 30%. Something tells me I have a mistake in my system...

By the way, GAT, when I run print(system.accounts.portfolio().annual) from your code, I get the attached. Do each of these values assume the same starting capital at the start of the year? If so, you'll notice that 2004, 2005, and 2006 had major losses; if we have a repeat of something like...

Good question, GAT. Here is my distribution of backtested daily returns over the past 7 years. That one recent brutal VIX day was actually the largest daily loss in 7 years! So, that makes me feel better that it was a major anomaly, and hopefully won't occur again for another 7 years.

What about putting a stop loss on the VX as part of the system? Is that heresy?

With a 30% volatility target, I think that means my daily standard deviation should be 1.875%, or 30% divided by 16. Given that I lost 10% in one day, is that cause for concern? It seems like that was a 5+ sigma event, which should have extremely low probability assuming a normal distribution.