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Important Q&A on your profitability concerning the Market Direction Model

Q: The returns on your Market Direction Model have been stellar. How do I apply this to my own trading?

A: For any of the ETFs excluding TVIX, you would buy a fixed percentage of the ETF on a buy signal, short the same percentage of the same ETF (or buy the inverse equivalent) on a sell signal, and move to 100% cash on a neutral signal.

For TVIX, you would buy a fixed percentage of the ETF on a sell signal, short a fixed percentage of the ETF on a buy signal, and move to 100% cash on a neutral signal.

Some members elect to pyramid into their position whereby they buy more as the price moves higher.

And the way you find the buy, sell or neutral signal is to log in and check what the signal is per the website results page. If the signal changes, you I would get an email alert.

 

Q: You write "using TYH with NO leverage" but isn't TYH a leveraged ETF?

A: TYH is a leveraged ETF but by NO leverage, we mean one used NO margin to buy TYH. They bought no more than 100%. A marginable account can buy beyond 100% of a security, typically 200% of a 1-times or 2-times ETF, and 133% of a 3-times ETF.

 

Q: Amazing theoretical performance on TVIX, but how have your actual portfolios performed?

A: The theoretical performance would have been essentially reproduced had one bought the respective ETF at the time the email was sent.

We can provide third-party-calculated results for our fund to accredited investors who qualify with a minimum net worth of $1.5 million exclusive of their home. Otherwise, our results are private, but rest assured that while we are not emulating the results one could achieve using the TVIX and the MDM signals, we are handily kicking the market's butt.

 

Q: I am quite surprised by TVIX, you show the performance for 2011 while you only started mentioning this ETF recently? Did you go 100% Long/short this ETF?

A: We only started tracking TVIX recently. TVIX started trading in late 2010 so we used the model's buy/sell/cash signals to recreate what would have occurred had one acted on the changes in the model's signals. Yes, I have bought as much as 65% of TVIX in my own personal account.

 

Q: I think you should show the drawdowns for TVIX, since a performance without drawdowns is not worth much.

A: We have stated in reports on TVIX that it is the most volatile ETF thus drawdowns are substantial. We will be posting the actual percentage gains and losses on the results page of the website by early this coming week.

 

Q: Would it be possible to provide graphical representation of your more recent timing results on the Nasdaq graph? Currently you have only up to May 2010.

A: The graph shown from 3/12/09 - 5/14/10 is just a representative example to give investors a better idea of how the market direction model works. Most investors use the up-to-date data we provide (1 month delay for non-members) in the tables shown on the same results page https://www.virtueofselfishinvesting.com/results to get a feel for how the model operates. In examining the tables, one can see that the model's fail-safe keeps losses under control to typically under 2% on a 1-times ETF so that the gains made during true signals more than make up for the small losses. Note, for 2-times and 3-times ETFs, the losses would be larger, so position size according to your risk tolerance levels.

 

Q: On the last sell signal issued by the model on August 31, where did you recommend buying TVIX? I also don't see where you recommended TNA.

A: We never recommended TVIX. In a recent report, we said was some members use the TVIX in their trading, buying TVIX on a sell signal and shorting TVIX on a buy signal issued by the model.

As for TNA, TZA which was recommended is the 3-times inverse of TNA. Most members buy the inverse ETF on a sell signal rather than shorting the normal ETF.

 

Q: I heard leveraged ETFs are a rigged game. Would it be better to short a normal ETF on a sell signal, and short an inverse ETF on a buy signal?

A: Go here: https://www.virtueofselfishinvesting.com/faqs/answer/Why-short-a-normal-leveraged-ETF-instead-of-just-buying-an-inverse-leveraged-ETF-

Published: 23 Sep 2011 12:15 ET
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