Market Lab Report - VIX Volatility Model (VVM) Rhythm of the Model 2/22/16

Published : February 22 2016 at 11:45 ET

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. 

This information is provided by Virtue of Selfish Investing, LLC (VoSI) is issued solely for informational purposes and does not constitute an offer to sell or a solicitation of an offer to buy securities. Information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of available data. VoSI reports are intended to alert VoSI members to technical developments in certain securities that may or may not be actionable, only, and are not intended as recommendations. Past performance is not a guarantee, nor is it necessarily indicative, of future results. Opinions expressed herein are statements of our judgment as of the publication date and are subject to change without notice. Entities including but not limited to VoSI, its members, officers, directors, employees, customers, agents, and affiliates may have a position, long or short, in the securities referred to herein, and/or other related securities, and may increase or decrease such position or take a contra position. Additional information is available upon written request. This publication is for clients of Virtue of Selfish Investing, LLC. Reproduction without written permission is strictly prohibited and will be prosecuted to the full extent of the law. ©2016 Virtue of Selfish Investing, LLC. All rights reserved.