What We Can Learn from a Simple Yet Robust Mechanical VIX Based Swing Trading Strategy

By Lawrence


Many traders love to know how to utilize various market breadth statistics to improve their trading. However, majority of the narratives out there are all guess work based on visual inspection and speculation on how a market breadth statistics can be interpreted. Unless you have in-depth knowledge about market breadth, it is difficult to tell how misleading these trading tips and techniques are. In this article I am going to show you a very simple mechanical swing trading strategy based on VIX only. What that means is that all the trading decisions are made without help from the price data (i.e. Emini S&P or SPY). It will help me illustrating several important points on swing trading Emini S&P and the index in general.


  • Background Information
  • Historical Performance of the Strategy
  • The Strategy in Action
  • The Rules of the Strategy
  • Why It Works and Why It Will Continue to Work in the Future
  • What We Learn from the Optimization Process
  • An Important Message for Those Who Never Tried to Build Their Own Automated Trading Strategies
  • What We Learn from this Strategy About VIX and Its Relationship with Emini S&P500 and SPY
  • Integrating the Concept into Your Own Trading
  • Why The Volatility Filter Matters
  • Summary
  • Resources

(Part of Market Breadth Primer series)

Background Information

I could not load data for VIX before year 2003 from Tradestation so results will be limited to historical backtesting from year 2003 to 2020. I am using 30-min bars for both Emini S&P and VIX. Sessions are controlled to include only normal stock market hours of 9:30 am to 4:00 pm Eastern Time.

This is a swing strategy that holds positions overnight.

The strategy is written in TradeStation EasyLanguage.

Actual code for the strategy is now available in the download area for premium members.

Backtesting done with trading one lot Emini S&P, $10 round turn commission and 1-tick slippage per trade.

Historical performance report can be downloaded from the Resource section below.

Historical Performance of the Strategy

Profit curve from mid 2003 to May 2020.


Trading performance summary.


At about $161,000 profit after commission and slippage, it works out to approximately $9,900 profit per year. Due to the serious drawdown concern you see on the equity curve, it is probably best to trade it with $45,000 to $50,000 initial capital. So, it is a swing trading strategy with about 20% return. Not bad at all.

The Strategy in Action

Here is an example of the strategy in action.


Here is another screenshot.


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