VIX Futures Contango/Backwardation

Entry Logic

• Exact Entry Trigger: Enter short VIX futures when the futures curve is in contango (front-month futures are cheaper than back-month futures). Enter long VIX futures when the curve is in backwardation (front-month futures are more expensive than back-month futures).
• Confirmation: The contango or backwardation should be significant.
• Timeframe: Daily chart.
• Location Context: Not applicable.
• Market Condition: A market that is either complacent (contango) or fearful (backwardation).

Exit Logic

• Profit Targets: A fixed target based on the expected convergence of the futures prices.
• Scaling Out: Not recommended.
• Trailing Stop: Not used.
• Signal Failure Exit: Exit if the shape of the futures curve changes unexpectedly.
• Opposite Signal Exit: Not applicable.
• Time Expiration: Exit the trade as the futures approach expiration.
• Momentum Loss: Not applicable.

Stop Loss Structure

• Hard Stop: A fixed stop based on a percentage of the contract value.
• Soft Stop: Not used.
• Max Dollar Loss: Varies by contract.
• Max Percent Loss: 2% of account capital.
• Structural Stop: Not applicable.

Risk Management Framework

• Risk Per Trade: 1% of account capital.
• Maximum Daily Loss Limit: Not applicable.
• Maximum Weekly Loss Limit: Not applicable.
• Maximum Drawdown: 15% from peak equity.
• R:R Requirement: Varies.

Position Sizing Model

• Sizing Approach: Fixed contract size.
• Volatility Adjustment: Not applicable.
• Conviction Sizing: Not applicable.
• Scaling In: Not recommended.
• Scaling Out: Not recommended.

Trade Filtering

• Market Conditions to Avoid: A market that is transitioning between contango and backwardation.
• Specific Setups Required: A clear and stable contango or backwardation structure.
• Instruments: VX (VIX futures).
• Time Restrictions: Can be traded at any time.
• Chop/News Avoidance: Be aware of major market events that could cause a sudden shift in volatility.

Context Framework

• Trend Direction: Not applicable.
• VWAP Relationship: Not applicable.
• MA Relationship: Not applicable.
• Range Location: Not applicable.
• Higher TF Alignment: Not applicable.

Trade Management Rules

• Breakeven: Not applicable.
• Scale Out: Not applicable.
• Add Size: Not recommended.
• Fast vs Slow Moves: This is a slow-moving strategy. Be patient.

Time Rules

• Optimal Trading Window: When the VIX futures curve is in a clear state of contango or backwardation.
• Times to Avoid: When the curve is flat or transitioning.
• Session Notes: This strategy can be traded in any session.

Setup Classification

• A+ Setup: A steep and stable contango or backwardation.
• A Setup: A moderate and stable contango or backwardation.
• B Setup: A shallow or unstable curve.
• C Setup: Avoid. A flat or transitioning curve.

Market Selection Criteria

• Instruments: VX (VIX futures).
• Volume/Liquidity: High volume and liquidity are essential.
• Volatility: Not applicable.

Statistical Edge Metrics

• Win Rate: 70-80%.
• Avg Win: Varies.
• Avg Loss: Varies.
• Profit Factor: Varies.
• Expectancy: Varies.

Failure Conditions

• When Strategy Fails: When there is a sudden and unexpected shift in market volatility.
• Specific Scenarios to Avoid: Holding a short VIX position during a market crash.

Psychological Rules

• Mental Discipline: Have a deep understanding of the VIX futures market and the term structure. This is a complex strategy that is not suitable for beginners.

Advanced Components

• Regime Detection: Not applicable.
• Filters: Monitor the shape of the VIX futures curve.
• Correlation: This strategy is based on the term structure of VIX futures.
• MTF Alignment: Not applicable.

Location

• Where Strongest: In a stable market environment (for short trades) or a fearful market environment (for long trades).
• Where Weakest: In a market that is rapidly transitioning between fear and complacency.