Market Lab Report – VIX Volatility Model (VVM) Rhythm of the Model 2/22/16
Members will note the VIX Volatility Model (VVM) has scored big gains a few times since its launch of more than 15% using 2x ETFs UVXY or TVIX within a day’s time. This is not reflected in VVM’s performance table which only records its major buy, sell, and cash signals. But each time VVM has scored big gains in a very short time, we have noted in emails that taking such quick profits can greatly enhance profits. That said, if you do not have the time to track your position on an intraday basis, you could simply follow VVM’s major signals which are emailed out in real-time. Based on the backtests, you would still do well as VVM tends to go on hot streaks where a lot of money is made in a matter of weeks. But don’t let quick profits create overconfidence in the model. As nothing goes up in a straight line, VVM has drawdowns which can last anywhere from a few weeks to, in the worst cases, a few months based on the backtests. VVM can have, for example, a dozen or more losing trades in a row, most all at small losses due to the fail-safes. It can then have a number of great trades which completely overpower the losses. The key is to take all the trades and not get discouraged by a losing streak. Also, since VVM is gauging volatility, sometimes a sell signal (selling volatility in anticipation of a rising market) can be profitable even while the market is falling, though this is less likely as volatility generally correlates with the stock market. VVM can teach members how the win/loss percentage is the least important statistic, and how greed can somewhat hamper profits by not taking big profits when you have them, outside of the model’s major signals. And always remember, past performance is no guarantee of future results, so don’t let any hot streaks cloud your vision.Â