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Favorite Volatility Strategy


#42

“KarlA27d AlexanderG
Thanks AlexanderG and VIXStrategies, I have both systems on my watch list. I am just thinking, if you can get a 30% CAGR after fees, lets say in a tax free IRA account, a 50K account will grow in 10 years to about 690K - the magic of compound interest.”

Going through some of the old threads I just realized I did not respond to the comment made to my observation above which was just to demonstrate the magic of compound interest.

Never in my wildest dreams would I expect that anyone on C2 could achieve over 10 years a compound annual growth rate (CAGR) of 30% let alone that few, if anyone, will still be around here 10 years from now. Just to keep it in perspective, Warren Buffett, considered by many the best investor in the world, achieved “only” about 20% CAGR over his investment career.

So keep that in mind when many of the new system developer promise outlandish returns.


#43

Oops, there is a strategy on C2 over 10 years with a 32.1% CAGR, however, I would never trade a strategy with a max dd of 62.9%.


#44

@KarlA I agree that Warren Buffet is arguably the best investor alive. However, he is an investor and participates in a completely different league. It´s absolutely logical that he can´t make 100% a year or some crazy returns like that because of the capital he moves. He doesn´t trade the market, he IS the market most of the time. So that´s a huge difference when you compare his results to results of smaller capital traders.

For example look at Larry Williams. He made around10,000% in his best year during an official real money trading contest which means his best year is by far better than Buffet´s best year.
So I have to disagree when you say that it´s not possible for anyone at C2 to deliver a better CAGR than Buffet over the course of several and even many years. It´s simply the wrong benchmark for active traders.


#45

Actually, Warren Buffet has an advantage over the average investor because he often has a controlling interest in the companies he invests in, so if anything goes wrong he comes in and shakes up the management. To give another example, Bernie Madoff attracted billions and billions, often from sophisticated investors, by just promising 10% to 12% steady returns.

A huge return over one or a couple of years does not mean anything, it is probably just luck. So I very much doubt that anyone on C2 can over a period of 10 years produce a 30% CAGR with less than 35% max dd, the absolute limit for me. Can you name me anybody or any hedge fund who has produced a return like this over 10 years, there might be some but you might need millions of dollars to participate in it.


#46

KarlA - you might want to look up or Google James (Jim) Simon of Renaissance Technologies. He and his company and elite group of Portfolio Manager puts anyone to shreds, including Warren Buffet himself, for years. The main difference between them and other so-called money managers is they focus mainly on the “technical” (with a very sophisticated and complex high level true algorithms) while the other PMs (mostly losing) focus on the “fundamenetals”. For 2016, Renaissance Tech again topped all hedge funds - by A LOT.

https://www.forbes.com/sites/nathanvardi/2017/03/14/hedge-fund-managers/#6e799a946e79


#47

Hi Karl,

ETF Timer has 9 1/2 years history on C2 and has a 17.1% annualized return with a max draw down of 43.5%. The draw down occurred almost 6 years ago and I have improved diversification and profit realization to substantially reduce the possibility of such a draw down from occurring again.

I don’t believe that there is any strategy on C2 with as long a track record that has a higher annualized return with a lower max draw down.

I hope to welcome you back as a subscriber again!

Jim


#48

Etf Timer is at https://collective2.com/details/30415311

I have recently reduced the historical $97 monthly price to just $67.

Jim


#49

Yes, I was an early subscriber of your ETF Timer fund and made a nice chunk of money until the decline started in June 2010, luckily I got out of it soon after, and I recently tested it again for a short period.

What I don’t like is that you opened a group of new funds under a different name, namely ETFCAPITALBUILDER with the funds ETF CAPITAL BUILDER, ETF GLOBAL TIMER and ETF VOLATILITY TIMER. All 3 have one thing in common, high win ratio and low avg. profit to avg. loss ratio, that is why the last two failed in my opinion and I think the first one will fail for the same reason unless you change the system.

Why did you open these funds under a different name and why are the last two mentioned not visible any more, both of them had subscribers so they should be visible. Maybe Matthew can give an explanation about that.


#50

That may be true, but if the C2 chart is accurate, it looks like your strategy peaked out on 6/14/2010 and didn’t hit a new equity high until about 11/14/2016. How many subscribers could follow a strategy that stayed in a drawdown for over 6 years? I see you’re not TOS, so may we assume you didn’t trade it either?


#51

Lately, all volatility developers got very quiet. It is interesting to observe how markets are changing. Looks like all ‘volatility’ strategies are oriented on ‘no volatility’ and all of them are losing money when volatility is present.

Very funny…or maybe sad.


#52

Trading in a transition between bull and bear market is the toughest you can get and with volatility systems it´s even harder. It´s way easier to spot the turning of bear to bull market than the other way around. Getting the timing right under these circumstances is just really difficult.

My own volatility system yields the same as the S&P500 YTD with more or less the same max drawdown which isn´t too bad considering that I trade short vol only (think feb crash). So the risk management logic seems to be valid, else I´d be down way more than the S&P500. But it´s nothing to brag about. IF the market turns though, my system will outperform. Systems that go Long/Short have even more trouble currently but that´s to be expected.


#53

Alexander, my point is that strategies with word Volatility in the name, are losing money in the past 2 months. Developers suggest with strategy name, that they know how to trade volatility if volatility is present. The facto, results are opposite. Maybe the correct strategy names should contain “No volatility…” (“No Volatility Invest” as an example).


#54

haha okay, gotcha. I can only say that the volatility of volatility is the difficulty here, not the volatility itself.

For example, take a sophisticated system like Smart Volatility IRA from @DavidJuday and apply it to a clear, trending bear market with high volatility. I´m quite sure it would make you a crap load of money. But we´re not yet in that phase thus it´s losing.

To expect any system to yield good returns during every market condition is dilusional. If you find something like that you can be 100% sure it´s not really systematic but based on luck.


#55

Opposite, I’m not sure of anything in the markets until I see it.

I do never expect that. But I do expect many volatility strategies go out of the business because developers were delusional about knowing how to use volatility.


#56

Hi all! First of all, thanks for the shout-out Alexander! :blush:

Just to throw in my 2 cents as it relates to my strategies. I use “volatility” in the name of my strategies to indicate that they primarily invest in volatility products (VXX, ZIV, etc.), not that the strategy should do better or worse in any specific volatility environment.

I’m short volatility 80% of the time, so tend to do better when volatility stays low – but can make significant returns when volatility makes decisive moves upward by switching to long volatility, like in Feb this year. In looking at my strategy back-tests (“almost fully” out of sample, and with simulated prices in the early years), 2007 and 2014 were my two worst years. In both cases, the long term VIX trend bottomed and started rising. In both cases, the next two years averaged over 100% returns per year in my back-tests – even though 2008-2009 was much different than 20015-2016. Likewise, 2018 has been rough (although both strategies are still positive for the year) as the long term VIX trend bottomed and the market is trying to figure out if this is just a correction or the start of a bear market. In either case I believe my strategies will adjust and take advantage of whatever the next couple years brings us!


#57

Volatility Strategies can vary widely. Mine are both positive over the past 2 and 3 months time frames but mixed YTD.

VXX Bias https://collective2.com/details/100707640
Trading Volatility 1 https://collective2.com/details/100314882