Volatility Model - (Beta) Model switches to SELL on November 20, 2015 - Second Attempt
The VIX Volatility Model (VVM) has switched to a SELL. This means to buy inverse ETFs such as SVXY, XIV, and ZIV.
As I wrote to members, all signals are being sent to give members a feel for how the model works. Note, in backtests, whipsaws can occur and whipsaw clusters can result where the model can get whipsawed more than once in a day. Elevated volatility around the fail-safe and re-buy point can cause more than one whipsaw in a day. The losses for such whipsaws remain small compared to profits so testing has shown it is better to take all signals, and not try to predict whipsaws or whipsaw clusters.
Note, to avoid confusion, the signals are now in alignment with the VIX. When the VIX rises, the market usually falls, and vice-versa. Thus a BUY signal means to buy the VIX, meaning the model believes the market is heading lower. A SELL signal means to sell the VIX, meaning the model believes the market is heading higher.
When the model is on a BUY signal, buy ETFs such as VXZ (0.5x), VIXY (1x), VXX (1x), TVIX (2X), UVXY (2X). The model thus believes the general markets will move lower thus volatility will increase.
When the model is on a SELL signal, Buy any of ZIV (less volatile apprx 0.5x), SVXY (1x), XIV (1x). The model thus believes the general markets will move higher thus volatility will decrease.
This model remains in beta for now, but once we achieve a profitable cycle with the fail-safes in place which are contextual to the emerging price patterns, the model will go live. Note, whipsaws are a fact of this strategy. As legendary futures trader Ed Seykota has famously said, "If you want to avoid whipsaws, stop trading."
Note, calling the Volatility Model a "model" is misleading as the algorithm is self-learning thus ever evolving with ever-changing price patterns. The same can be said for the Market Direction Model though it is self-learning at a much slower pace as it is designed to catch the major trends.
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