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Frequently Asked Questions

Dr K VIX Volatility Model
I seem to be struggling with the VVM. It has a history of backtested triple digit returns according to all I read. Yet, since going live $100,000 has decreased to $57,310? If so, why continue to use it? (Written 6-6-17)

Valid question. VVM went through a series of adjustments, ie, growing pains, which were all finally in place as of 11-8-16. By this time, $100,000 had been reduced to $59,930 by 11-8-16. 

The model then shot up +54.3% through 3-17-17 to $92,486 with all the adjustments in place, an excellent sign the backtested triple digit returns would continue in real-time. Another adjustment was then made starting with the 4-3-17 sell signal. As you can see, since that adjustment was made on 4-3-17, losses reversed the 54.3% gains.

Some have asked why not just remove the adjustment made on 4-3-17? I will be closely monitoring the performance of the VVM before and after the adjustment made on 4-3-17. The adjustment greatly reduces the number of trades closed at a small loss while allowing larger profits to accrue. The downside is that with the fail-safe adjustment, the strategy's worst total drawdown (losses from peak to trough) increased to -40.9%. Further, the size of a loss for an individual signal can be greater. That said, the time to recover losses is much faster than it was prior to the adjustment made on 4-3-17 as the performance trajectory has materially steepened.


Published: Jun 6 2017