Frequently Asked Questions
Dr K VIX Volatility Model
I am a little confused about how your buy, sell and cash signals would be executed. Also, how do you position size and manage your stops in this system?
The best way is to simply look at the VVM results table here: http://www.virtueofselfishinvesting.com/market-timing-results/dr-k-vix-volatility-model/0
As of this writing on 3-8-17, here are the trades since 12-1-16:
So for example, on 12-14-16, you would buy a volatility-inverse ETF such as 1x XIV. You would sell it the same day on 12-14-16 for a loss of -1.38% (excluding any slippage and commissions- in practice, account sizes under $200k induce about a 0.1% slippage on average while commissions are negligible). Then on 12-29-16, you would buy XIV then sell it on 1-12-17 for a 14.74% gain.
If we take the buy signal on 12-6-16, you would buy a volatility ETF such as 1x VXX or 2x UVXY., then sell it the same day for a -2.94% loss. On 12-7-16, you would buy a volatility-inverse ETF such as 1x XIV, then sell it the same day for a -0.22% loss.
Our results are calculated based on buying UVXY on buy signals and XIV in sell signals.
Stops are based on the VVM strategy's fail-safes. That said, you may wish to use tighter stops depending on your risk tolerance levels. You could alternatively buy a smaller position or trade a 0.5x ETF such as ZIV instead of 1x XIV.
As for position sizing, it too depends on your risk tolerance levels. Some of our members focus on those ETFs that are less volatile such as ZIV (less volatile apprx 0.5x). Knowing one's risk tolerance level is key to good trading since one can then buy and sell those ETFs that fit their style.
Published: Mar 8 2017