Recent events in the volatility world have shown how risky it is. Being short UVXY can lead to more than 100% losses of capital during extreme events. If you short UVXY, we feel that it is almost inevitable that at some point in the future you will suffer catastrophic losses. We use PUTS on UVXY to limit risk while allowing us to participate in the potential gains that were on display in the past. We used techniques learned at Carnegie Mellon University's school of Computer Science to create a proprietary signal that in the past decade was active about 25% of the time.
Backtesting is a dangerous game - it is very easy to over-optimize parameters but still convince yourself that you have a valid system. We use a set of indicators that are grounded in reality and have been validated 1) over the lifetime of UVXY, 2) over our own simulations of UVXY that go back to 2004, and 3) over more general price data that goes back even further. We also have developed our money management strategy with an emphasis on minimizing drawdown and ulcer index. Having said all of that, we still urge you to only use funds that can be lost without much distress; these products are inherently risky.
This product is similar to Carnegie Volatility, which uses SVXY as the trading vehicle (with corresponding lower profit/risk potentials). It is also similar to Carnegie Vol OTB. "OTB" stands for "only the best." In OTB we use only the best signals and trades approx 15% of the time (compared to approx 20% for the other two products). This reduces the potential gains somewhat but also reduces exposure to the volatility market while (at least in the past) achieving most of the gains.
Please see CarnegieVolatility.com for a fuller description of our methodology.