Frequently Asked Questions

Dr K VIX Volatility Model
Q: If we are following the VVM signal and invested in, say, SVXY, we are sitting on roughly 20% profits as of Friday's close. But won't we risk these profits as the outcome of the Doha meeting could rock the oil/overall markets, especially given that the VIX is now around 13, and the rally is now nine weeks long?

A: There is nothing wrong with taking some profits off the table when you have them, especially in this QE-manipulated market environment which has rendered a number of reliable indicators that worked prior to QE, unreliable. One could instead keep a core position in SVXY based on VVM's current signal.

That said, I have had to learn the hard way not to override major signals issued by the VVM. As I wrote here:
experience can work against you. So moving to cash ahead of the Doha meeting may seem like a comfortable idea. But keep in mind other major news items often came without issue while others came with little warning as evidenced in the in the sharp market corrections over the last year alone. So trying to second guess major events has never been a good way to consistently profit, but there is nothing wrong with taking some early profits ahead of potentially turbulent events. There have been occasions where overriding the model seemed exactly the right thing to do, but while overrides can work, on balance, they short circuit the model's overall profitability.

Note, the results table now reflects the following integrations into the model:

1) The 15% UVXY profit taking rule which uses a 7.5% gain in VXX as a trigger to let profits run but keep stops very tight so 15% is preserved.

2) No override of the model's signals. While there were two signals I overrode that were highly profitable as I wrote in an earlier report, I also overrode a number of signals which were only mildly profitable and unprofitable. The challenge is it is impossible to know ahead of time which signals will be unprofitable and which will be hugely profitable, so it is best to take all signals.

3) No override of fail-safes.

4) Integration of the above VIX Spiking strategy.

Published: Apr 17 2016, Modified: Jun 26 2016