Now that we have more than a year of live trading results, we feel that it is time to check the robustness of our model. In the last few weeks, we carried out a variety of robustness tests on it. We introduced noise from various sources to our data and we applied time-shift techniques. We did all this in order to introduce uncertainty to our data that has a high probability of resembling future developments.
The conclusion from our robustness tests is that our current model White Chapel has indeed the potential to make great returns in the future (well above 100% and even 200% average annual return), but that this potential comes with a relatively great risk. From our tests we conclude that especially the trading of UVXY comes with greater risks.
We decided to investigate if we could come up with alternative models which also have the potential for great returns, but with a lower risk. We were able to construct a number of alternative models with the potential for substantial returns. And we also carried out a variety of robustness tests on these models. From the pool of investigated models we selected three additional models that we would like to introduce to you as viable alternatives to our current model.
This is basically the model that we have been using since 1 January 2016. On the basis of our robustness tests, we made a minor change to the model which improves robustness to some extent, while maintaining a high potential for great returns. This model trades both XIV ETNs and UVXY ETFs.
It adapts itself to a variety of market conditions, detects tendencies of fear and euphoria, takes federal funds rates into consideration and is driven by swings in momentum. The model has a potential for great returns, but comes with a high level of risk.
This is the same model as Danny Daredevil, with one difference: it does not trade UVXY ETFs. Instead, it holds cash at the moment that it gives us a trading signal to sell XIV ETNs. This lowers the level of risk substantially, while at the same time maintaining a relatively high potential for substantial returns.
This is a new model and can be viewed as a simplified version of the two models above. It treats all market conditions uniformly and does not take euphoria, fear and federal funds rates into consideration. Its main drivers are swings in momentum. The model does not trade UVXY ETFs. It has the highest probability to be in line with future developments. It does this at the cost of a somewhat lower potential return than the models above.
This model is a very basic one and its strategy is very plain: buy XIV ETNs and stick to those, whatever happens. This model will steadily make substantial returns in bull markets and will lose substantially in bear markets. It is probably not the best time to start with this model at the moment.
Starting today, we will begin reporting on the four models above and will differentiate trading signals between the various models. We will keep 1 January 2016 as the starting date for Danny Daredevil, which is the direct successor to our current version of White Chapel. For the other three models, we will use 6 March 2017 as a starting date.
If you want to know more about the new models, please check out the four new model pages we’ve created. These can be accessed by means of their menu item in the main menu or by clicking on one of the icons in the table below.
The major US indices barely moved last Friday, but volatility eased considerably: one day after dropping below 12 points, the VIX even sank below 11 points and closed at 10.96. Main casualties from this sharp drop were UVXY ETFs, which lost more than 6%.
Below is our new way of reporting on the results of White Chapel, subdivided into the achievements for the four models. All data categories from previous posts are there, except for the accumulated capital. In order to make the comparison between the four models possible, we leave that category out.
Danny Daredevil, the direct successor of the model which has been in use since 1 January 2016, lost 6% and its return since the start dropped to 220%. Anny, Suzy and Larry were not in possession of UVXY ETFs or XIV ETNs last Friday. At the start of today’s session, Solid Suzy and Lazy Larry bought XIV ETNs. The results of this purchase will become clear in tomorrow’s blog post.
Trading signal: because of the start of their investment portfolios, Solid Suzy and Lazy Larry bought XIV ETNs (149.97 @ $66.68).
RSS = Return Since Start | YTD = Year-To-Date | QTD = Quarter-To-Date | AAR = Average Annual Return
Yesterday, René took his parents for a short trip to Rotterdam. At the famous independent film and music theater ‘LantarenVenster’ they watched ‘Harmonium‘, the latest movie of the Japanese director Kôji Fukada. The original Japanese title of the movie is ‘Fuchi ni tatsu’, which can best be translated as ‘standing on the edge’. If René were to summarize its theme in as few words as possible, it would be: ‘All our actions have consequences’.
After the movie, they visited the Fenix Food Factory, a former warehouse at the Katendrecht peninsula, nowadays the place to be for culinary surprises. At one of the many food corners they enjoyed a delicious Tonkotsu Ramen, prepared by a Japanese cook. A great way to spend a cold, windy, rainy day.