In the September 2012 newsletter, the article "VIX Trading Strategies" was the first in a series discussing various technical and quantitative trading strategies beginning with a simple moving average approach to trading the CBOE Volatility Index (VIX) VIX futures contract. This article discusses the use of the Aroon Oscillator.
The VIX futures contract tends to be mean-reverting, thus seeking overbought conditions is a logical approach to trading this market. As we noted in the previous article, VIX futures tends to trade between a major resistance near 40 and a major support of 10 to 15, and within that the market may trend.
Developing trading strategies involves the investigation of a market's liquidity for various reasons, including the potential for slippage. On October 1, 2012, CBOE Futures Exchange, LLC (CFE) once again reported record volume in VIX futures. In September 2012 the Average Daily Volume reached a new record of 126,345 contracts versus the previous record of 102,587 contracts traded in June 2012. A new record was set in September 2012 of 2,400,552 contracts traded surpassing the previous record of 2,154,325 contracts traded in June 2012. i
For those not familiar with the Aroon Oscillator, it was developed by Tushar Chande in 1995. The oscillator first appeared in the September 1995 issue of Technical Analysis of Stocks and Commodities magazine. The word "Aroon" is Sanskrit for "dawn's early light", thus seeking changes in a market. The oscillator is the differential between the Aroon Up and the Aroon Down indicators which creates an oscillator indicating a market's strength in a trading range.
It is defined as an oscillator because it ranges between READ MORE
Copyright ©2012 Mark Shore. Contact the author for permission for republication at firstname.lastname@example.org Mark Shore has more than 20 years of experience in the futures markets and managed futures, publishes research, consults on alternative investments and conducts educational workshops. www.shorecapmgmt.com
Mark Shore is also an Adjunct Professor at DePaul University's Kellstadt Graduate School of Business in Chicago where he teaches a managed futures / global macro course and an Adjunct at the New York Institute of Finance. Mark is a contributing writer to Reuters HedgeWorld.
Past performance is not necessarily indicative of future results. There is risk of loss when investing in futures and options. Always review a complete CTA disclosure document before investing in any Managed Futures program. Managed futures can be a volatile and risky investment; only use appropriate risk capital; this investment is not for everyone. The opinions expressed are solely those of the author and are only for educational purposes. Please talk to your financial advisor before making any investment decisions.