Top Trading System for Q4 – Gap Continuation and Using A VIX Filter to Manage Short Trades

Gap Continuation NQ is one of the top strategies that we want to trade in Q4. All seven variations of this strategy can be leased here.

The open code for the 2019 version is in the Members Area for Seven Trading Systems for the S&P Futures.

Seven Trading Systems for the S&P Futures

We go over the performance for seven variations of this strategy. Across the board, the long side has worked very well with stop losses between $300 and $2000. The version we have been using in the Stock Index Portfolio 34, uses a range filter requiring ranges to “narrow” before entry. The versions that do not use the range filter have performed better in the short term and are near equity peaks and have outperformed the version we have been using in the portfolio.

While the long side has some of the best equity curves, we have seen, the short side is very weak showing negative results in most of the variations. Gap Continuation 2023 is the exception to this and uses a market internal filter for the shorts and really improves the short side. We can’t expect to have as many short trade opportunities as there are long trade opportunities over the last 7 years with the strong trend higher in the stock index futures.

After researching this strategy this week, there are two ways to improve the short side on this strategy:

1.) a bigger stop loss for shorts and

2.) using a VIX Filter so that we do not short a dull market with momentum that is more likely to mean revert and stop us out.

Additionally, using the Money Management Algorithms to enter at a better price is another way to improve the short side. Many short trades would have worked with bigger stop losses or a delayed entry that took advantage of a retracement in price.

While we anticipate the liquidity to drive the market higher in Q4 with the potential for long trades to work well, there could also be a strong bear market at any moment in time. Using the VIX filter requiring the Average Range of the VIX to be greater than 2.0 would not limit short trades in a strong bear market since the Average Range of the VIX easily rises above 2.0 in a real sell off.

We want to improve this strategy so that we don’t short a dull market.