Volatility Model - (Beta) Q&A - Sideways Markets

Published : October 27 2015 at 10:36 ET
Q: I concentrate on volatility in my trading. I know that you have back tested your model in different time periods and markets. Now I would assume for a volatility model to produce results...either way...then there must be volatility...so my question is how does the model perform in quiescent periods in the market when volatility is low..sideways markets (although sideways markets can also be volatile within their range)...you seemed to intimate in some of your comments in the weekly webinars that the backtests show good results even in sideways markets with low volatility? 

A:  When the market is in an uptrend or moving sideways as it has for much of this year [2015], volatility tends to be lower. In uptrends, the model tends to sit on its buy signal. In sideways chop, it tends to switch every few days to several days, thus the frequently of trade is higher. This frequent switching has brought the model impressive returns this year in backtests. And in years where the switching is less frequent, returns have been even more impressive. I have been trading the model in real-time using real capital which is proving out. Once enough good signals have been achieved, the model will go live.

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