First and foremost, VIPES stands for (V)olatility, (I)ndustry, (P)rice, (E)arnings and (S)kew. This is a concept I learned with Dan Sheridan on his mentoring program. It is a way for traders to evaluate a stock/etf/index before placing any kind of income strategy. I won't spend too much time on the details, but in a nutshell, it forces you to look at the potential trading candidates with a bit more detail.
I have adapted a spreadsheet to help me with 2 elements of VIPES: (V)olatility and (P)rice. My goal is to look at a several potential candidates and filter the ones that are not moving too much. So let's look at the chart and I'll explain it:
The first section of the sheet studies 1-day Price Action. I look at how many st. deviation the candidate is moving lately. The questions I'm answering are: Has the candidate moved 1.5 or 2 standard deviations several times in the past 30 days? How about in the past 90 days? For each candidate It will show the number of times and percentage of times these type of days happened.
So, If one candidate has moved 2 st. deviations for over 5% of times in any period, It suggests it is not behaving as per the "normal distribution", so the warning light goes on.
The next section looks at how many standard deviation the candidate has been moving for a 5-day period. Each bar on the chart represents a 5-day period, so if the candidate has been moving 1 or more st. deviation for 5 days, it is also a warning sign that it is not so quiet.
Let's look at an example:
You can see from the two charts bellow that SPY has a better price profile, it has not moved over 2 st. deviation more than 5% of the time on both the 90-day and 30-day periods, not the same story for USO, it has moved 2 st. deviation 7% of the time in both periods. Looking at the 5-day chart, you'll also notice that USO hav moved 0.5 st. deviations for the 5-day periods several times in a row very recently, which didn't happen for SPY.
I hope this helps, if not, please ask your questions and I'll do my best to answer.
2 comments:
Hi Gustavo,
is this similar to augen's spike chart? do you use 20 days STDEVD to calculate the annual vol?
also is you 5 day chart based on weekly data?
do you use this info to find 'calmer' instruments or just to gauge if the instrument that you are trading is behaving as norm.
thx.
Hi there, Yes, this is totally based on Augen's spike chart, using the same formulas he published on his book.
The 5-day chart is the same principle, except that I'm calculating the volatility for 5 days instead of just a daily basis as shown in the spike chart. Augen talks about that on his book as well, the ability to use a bigger time frame.
I use both charts to monitor the "conditions" before and during a trade, this serves as a way to measure what is going on with the market.
Cheers,
Gustavo!
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