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Market Lab Report - Risk Control Is Key! Q: How do you position size and manage your stops?

Q: How do you position size and manage your stops with the VIX Volatility Model? I am also a little confused about how your buy, sell and cash signals would be executed.

A: As of this writing on 3-8-17, the VIX Volatility Model has generated these signals since 12-1-16:

So for example, on 12-14-16, you would buy a volatility-inverse ETF such as 1x XIV. You would sell it the same day on 12-14-16 for a loss of -1.38% (excluding any slippage and commissions- in practice, account sizes under $200k induce about a 0.1% slippage on average while commissions are negligible). Then on 12-29-16, you would buy XIV then sell it on 1-12-17 for a +14.74% gain.

If we take the buy signal on 12-6-16, you would buy a volatility ETF such as 1x VXX or 2x UVXY, then sell it the same day for a -2.94% loss. On 12-7-16, you would buy a volatility-inverse ETF such as 1x XIV, then sell it the same day for a -0.22% loss.

Our results are calculated based on buying UVXY on buy signals and XIV in sell signals.

Stops are based on the VVM strategy's fail-safes. You will notice losses are typically much less than the gains. That said, you can also expect strings of small losses at times. This is equivalent to buying "insurance" as the VVM protects its downside. That said, you may wish to use tighter stops depending on your risk tolerance levels. You could alternatively buy a smaller position or trade a 0.5x ETF such as ZIV instead of 1x XIV.

As for position sizing, it too depends on your risk tolerance levels. Some of our members focus on those ETFs that are less volatile such as ZIV (less volatile apprx 0.5x). Knowing one's risk tolerance level is key to good trading since one can then buy and sell those ETFs that are more likely to avoid their "pain points". 

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This information is provided by MoKa Investors, LLC DBA Virtue of Selfish Investing (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. Reproduction without written permission is strictly prohibited and will be prosecuted to the full extent of the law. ©2024 MoKa Investors, LLC DBA Virtue of Selfish Investing. All rights reserved.
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