A glowing financial growth chart features an upward trend line and volatility indicators.

Trend-Following Strategy With A VIX Twist (14% Risk-Adjusted Return)

ByOddmund Groette Trading strategies

Today, we are looking at a strategy that we call trend following strategy with a VIX twist.

We found this in Alpha Architect’s database. However, we made a twist to it.

Can VIX (implied volatility) be used to improve a trend-following strategy? The logic is that we can incorporate the VIX and, hopefully, improve the signal’s power.

Trend-Following Strategy With A VIX Twist

We backtested the strategy only on Nasdaq-100 (QQQ), and we got the following results (monthly bars):

A line chart displays long-term portfolio equity growth for a quantitative trading strategy.
Discover how a Trend-Following Strategy With A VIX Twist (14% Risk-Adjusted Return) drives steady portfolio gains.

Strategy type: Trend-Following.

Market: Nasdaq 100 (QQQ).

Performance

  • No. of trades: 19
  • Average gain per trade: 20.5%
  • Win ratio: 63%
  • Profit factor: 4
  • Annual returns (CAGR): 10.4%
  • Exposure/time in the market: 74%
  • Risk-adjusted return: 14% (CAGR divided by time spent in the market (0.74))
  • Max drawdown: 31%

Trading Rules

We used the following trading rules:

🔒 These trading rules are for members only.

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I’ve got an Msc from Heriot-Watt University, Edinburgh (1996), in addition a to a business administration degree the Norwegian School of Management (BI – 1994). Did my mandatory military service in between.

After university, I worked two years as an auditor (1996-1998).

I co-founded Aksjeforum.com in 1998/99 - one of the first websites about trading and investing in Norway. It was later acquired by Digi.no in 2001.

I have written 4 books about trading (in Norwegian). One of them has sold 30,000 copies, a record for a financial book in Norway.

From 2001 until 2018 full-time independent prop trader (Series 7 in 2001) and investor.

2018-today: Investor, writer, analyst.

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