Filters
Last updated
Last updated
Use this to show only strategies that perform best within the range you set.
For example, if you set the start range to 8-14, you will only see strategies that have their best performance starting somewhere in that range.
You can use both sliders in combination to see only strategies that incorporate a certain level, too. Say VIX is 19 points and you want to know which strategies perform well in that case. Set the end of the start slider to 19 and the start of the end slider to 19 to see all strategies that perform well at that level.
What Optimal VIX Range Start Represents
The Optimal VIX Range Start determines the minimum VIX level at which a strategy is considered to be in its optimal volatility environment.
The VIX, or “fear index,” gauges expected market volatility over the next 30 days. By setting a VIX range, traders can fine-tune strategies to execute only in favorable volatility conditions.
This setting pairs with the Optimal VIX Range End to create a volatility window within which the strategy has historically performed best. By defining a specific start to this window, users can tailor strategies to activate only when volatility reaches a desired threshold.
Why This Filter Matters
Market Condition Targeting: Market volatility can significantly impact options strategies, especially those with short time horizons like the ones FireForge emphasizes. By setting a minimum VIX threshold, users can isolate conditions that best suit each strategy, potentially increasing profitability and reducing volatility-related risks.
Risk Management: Higher VIX levels often correspond to increased market risk, as volatility rises during times of uncertainty. Traders may choose a higher starting VIX to restrict their strategies to times when volatility-based premiums are higher, which can be beneficial for premium-selling strategies such as put and call spreads.
Reduced Overtrading: By targeting specific VIX ranges, users avoid unnecessary trades during suboptimal conditions. This selective approach helps reduce trading frequency when market volatility is too low or too high, thereby improving the overall quality and relevance of each trade.
Practical Applications
Selective Income Strategies: For income-focused strategies, a lower VIX Start can ensure that trades occur during relatively calm market periods, capturing premium without excessive exposure to market swings. Setting a narrow VIX window allows income traders to capitalize on stable conditions with controlled risk.
Volatility-Sensitive Strategies: For strategies that aim to benefit from higher volatility, setting a higher VIX Start aligns the trades with more active market periods. This filter is especially useful for strategies that rely on volatility expansion to gain favorable entry points.
Adaptive Strategy Execution: In environments with fluctuating volatility, this filter allows users to adapt by selectively applying strategies during volatile periods. Users can experiment with different VIX ranges to find the optimal start point for strategies that perform well in high-risk, high-reward conditions.
Only show strategies that have at least that many trade over the entire tested period. This can be useful to filter out strategies that are too niche and might not have robust enough data to extrapolate performance estimates.
You can use this together with Min VIX span % to get robust results while still taking advantage of niche settings.
The Min VIX Span % filter is an essential parameter in the Strategy Finder, designed to enhance the robustness of strategy selection by ensuring that strategies are tested within sufficiently broad volatility conditions.
What Min VIX Span % Measures
This setting defines the minimum percentage of trading days where the VIX falls within the optimal range specified for a given strategy. It’s a measure of how well the strategy is covered across varying market conditions, particularly in terms of volatility.
By setting a higher VIX Span %, users ensure that the strategy has been tested and proven within a substantial portion of the VIX range, lending greater statistical reliability.
Why This Filter Matters
Strategies with a low VIX Span % may perform optimally within narrow or niche VIX conditions, meaning they are only applicable under specific and possibly rare market conditions. While potentially high-performing, such strategies might offer limited applicability, resulting in fewer trades and less data for analysis.
Increasing the Min VIX Span % allows users to focus on strategies that are more broadly applicable and therefore more resilient across various market environments. This makes the strategy more reliable, ensuring it has demonstrated performance across a diverse range of trading conditions.
Practical Applications
Filtering Niche vs. Broadly Applicable Strategies: Setting a low Min VIX Span % may allow for niche strategies that perform well only within specific VIX ranges. These strategies can be appealing for targeted trading but may not be suitable for general application. Conversely, a higher VIX Span % favors broadly applicable strategies that have shown robustness across more trading days.
Boosting Robustness: By filtering out strategies with a low Min VIX Span %, users can prioritize strategies that are more likely to deliver consistent results, reducing the chance of overfitting to a narrow volatility range.
Sets a cap on the capital required to trade the strategy without facing margin or capital shortfalls. Users can filter strategies to match their available trading capital, ensuring financial feasibility.
The required capital is determined by adding the largest absolute drawdown and adding the biggest buying power reduction. That way, even if you encountered the drawdown right at that start of applying the strategy, you could still keep trading.
The Min Risk-of-Ruin Weight % filter is a critical setting in FireForge, designed to help users focus on strategies with a low probability of total capital loss. By setting a minimum risk-of-ruin threshold, this filter allows users to prioritize strategies that have demonstrated resilience under adverse market conditions.
What Min Risk-of-Ruin Weight % Measures
Risk-of-Ruin Weight is a metric derived from Monte Carlo simulations. It estimates the likelihood of a strategy depleting its starting capital under various simulated market scenarios.
A higher Risk-of-Ruin Weight indicates a lower chance of total capital loss, meaning the strategy has shown robustness in hypothetical stress tests.
In FireForge, this weight is calculated as follows:
If a strategy’s Monte Carlo risk-of-ruin (MC Risk-of-Ruin %) is above 10%, the weight is set to 0, indicating a high likelihood of capital loss.
If the risk of ruin is below 10%, the weight is calculated as an exponentially decreasing function of the risk percentage. This function favors strategies with lower ruin probabilities, but only those that meet strict survivability criteria.
Why This Filter Matters
Strategies with a low Risk-of-Ruin Weight % have undergone rigorous testing against adverse scenarios and demonstrated their ability to maintain capital. For risk-averse traders, especially those focused on capital preservation, this filter is invaluable as it reduces the likelihood of selecting a high-risk strategy.
This setting ensures that selected strategies can withstand common market downturns or volatility spikes, making them more suitable for traders looking to avoid significant drawdowns.
The exponential decay function in the calculation further emphasizes capital safety. Strategies that come close to the 10% ruin threshold are heavily penalized, ensuring only the most resilient options are favored.
Practical Applications
Income Trading: For traders using FireForge for income-focused strategies, setting a high Min Risk-of-Ruin Weight % is essential. These traders typically prioritize steady returns with minimal risk, making this filter crucial for ensuring that their chosen strategies have low likelihoods of capital depletion.
Long-Term Strategy Selection: Users with a long-term focus often benefit from filtering out high-risk strategies to ensure consistency over time. By setting a strict minimum for risk-of-ruin, users can more reliably plan for sustainable returns, knowing that their capital is unlikely to suffer extreme losses.
Defensive Portfolio Construction: This filter is valuable in constructing a defensive or conservative portfolio. By combining strategies with low risk-of-ruin, users can build a portfolio that prioritizes capital retention while still allowing for strategic growth in stable conditions.