Trading System #1–Introduction

The first trading system I am looking to develop is based on some material I found on the internet.  The claim is that in the five days after the CBOE Volatility Index (VIX) closes 5% or more below its 10-day simple moving average (SMA), the S&P 500 index (SPX) has lost money on average.  Furthermore, when the VIX closes 5% or more above its 10-SMA, SPX has outperformed the average week better than 2-1 over the next five trading days.

Can I verify these results?

The first part should be easier to backtest.  I will buy at the close when VIX closes 5% or more above its 10-SMA.  I will exit five days later. As a benchmark, I want to compare these results to the average 5-day period.

What seems a bit tricky about this backtest is that I will need to allow for multiple signals to be in effect at once.  In other words, if VIX closes 5% above its 10-SMA today, tomorrow, and the day after, then I will need to allow for three open trades.  In practice, this would be simple enough:  position size to allow for a maximum of five open trades at the same time.  If your account size is $100K then don’t allocate more than $20K per trade.  Most backtesting software that I’ve seen will not allow for multiple trades on the same ticker triggered at different times to be open concomitantly.

Thankfully, AmiBroker does not fall prey to this restriction.  AmiBroker is the market analysis software that I have struggled to learn over the past 18 months.  Let’s see if I can get some answers to this first question by tomorrow.