| * This strategy holds a 15% constant allocation to SHV
Explanation: Click here for Iron Condor Strategy lesson 10
Section 2: Blog
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VTS Community,
Of all the recurring questions I get, something in the form of the following is definitely in the top 3:
Question: Wouldn't it reduce the whipsaw to just buy & hold the SVXY? The drawdowns would be painful but wouldn't the long-term performance be good?
A few words about the dreaded whipsaw
For anyone who's new to our tactical rotation style here at VTS, whipsaw is what we call it when we enter a trade only to see it go the other way soon after. So for example, entering the SVXY and then then next day or two it goes down and you get burned for losses. Or getting into GLD for safety maybe, only to see the SVXY go up the next day and you feel ripped off for not being in it.
Whipsaw is part of the process because we are only ever in one position at a time, and on a short-term time frame it's always possible it's the wrong one. Now whipsaw has a way of working itself out in the medium term, that's the strength of trend following. When we catch a good trend the return can be explosive. However, sometimes you do get bounced around day to day if the market is not cooperating.
The drawdowns aren't painful, they're unsustainable
People often gloss over that part when they talk about buy & hold. They'll say, "sure the drawdowns will be painful, but they always recover eventually right?"
Technically speaking that is true. With respect to the stock market, and even Short Volatility using something like SVXY or SVIX, it's true they will eventually hit all time highs again. The problem is, when the drawdowns become so large that you simply can't handle the stress, that's when people pull the plug near the bottom and lock in those losses.
As I always say, buy & hold is fine about 65% of the time. It's that other 35% that will kill your forward progress.
(-0.5x) SVXY since VIX futures launched Mar 26, 2004 |
