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Strategies & Market Trends : Computer Screening for Position Trading

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To: pcyhuang who wrote ()	11/22/1998 3:13:00 AM
From: pcyhuang	of 5

WARNING!! As we approach the Thanksgiving holiday, the market is bullishly approaching this year's highs. But be carful, a forewarning especially for the momentum players. Other than the use of GTC stop-loss orders discussed in my other messages in this thread, I have been experimenting with adding a Hedged Component to any of the momentum models. The criteria I have used successfully is the CBOE's volatility index (VIX). I would hedge certain percentage of the dollar value of an investment portfolio according to a pre-determined range of the VIX index as follows: VIX % hedged <25 100 25-30 100 30-35 80 35-40 60 40-45 40 45-50 20 >50 0 For hedging purposes, I use the DIA (Dow Jones Depository Trust) or the SPY (S&P500 Depository Trust) traded on the American Stock Exchange. For example, suppose you have US$50,000 portfolio in one of the momentum models, you would short US$50,000 worth of the SPY or the DIA, since the current reading of the VIX index is at the 21+ level. Always remember that a good night sleep and protecting your capital is well worth the hedging cost... rgds, pcyhuang pronet.net.tw

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