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Volatility Trading Strategy

I have been using a volatility trading strategy over the past year, but the market regime seems to have changed and the system isn't performing nearly as well.

This was a very aggressive system as you can tell from the returns.

I am releasing the code in the interest of research. It has evolved a lot over time, but one thing I can state is that the slippage model and commissions I have setup are actually quite accurate if you are trading less than 7 figures. The standard Q slippage model does not apply because the securities being traded are very liquid.

Clone Algorithm
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Backtest from to with initial capital
Total Returns
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Alpha
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Beta
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Sharpe
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Sortino
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Max Drawdown
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Benchmark Returns
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Volatility
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Returns 1 Month 3 Month 6 Month 12 Month
Alpha 1 Month 3 Month 6 Month 12 Month
Beta 1 Month 3 Month 6 Month 12 Month
Sharpe 1 Month 3 Month 6 Month 12 Month
Sortino 1 Month 3 Month 6 Month 12 Month
Volatility 1 Month 3 Month 6 Month 12 Month
Max Drawdown 1 Month 3 Month 6 Month 12 Month
# Backtest ID: 5877b1a08c0d89619830f402
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2 responses

Perhaps a quick summary of your rationale and signals?

The general rationale is that if yesterdays close price is higher than the day before's, then this morning should see an increase in volatility (panic/insurance/hedging).

Similarly, if yesterdays close price is higher than the day before's, but the price after market open is was lower this morning, and the current price is less than 1% higher than yesterdays close price, we can assume that volatility will decrease (hence short). Note shorting only happens on Thurs and Fri.

The above is a summary, but you can easily read through the code to see the exact details - there is no complex maths with matrix transformations etc like most other quant algos. I like KISS :)