Easter Update and Reflections on Drawdown Recovery

Darwin WET drawdown recovery since inception

April seems to be shaping up nicely with my intra day-strategy taking advantage of the available volatility. Also some EUR short trades came in earlier than I anticipated which gives us a nice “bounce” to set up further positions which may lead us into a shorter term drawdown next week.

This position in EURUSD is building nicely with an option to part hedge which I have in place should the set up require it. There are many obvious key drivers to the market at the moment but I am encouraged to see very clear levels and zones set by the interbank market to trade with.

The plan this month is to build into predominately EUR positions both short and long. Continue to trade daily swings within my zones, predominately GBP pairs whilst we have good average daily ranges.

Drawdown

I’d like to talk about the journey of my Darwin Asset, WET. Before the asset is available to be presented to investors it has to trade and build enough history for Darwinex to apply its proprietary investable attributes/risk manager.

During this phase the Darwin WET went into pretty much immediate drawdown caused by a combination of me having to learn the calibration of trade sizes, number of pairs and the “positive/negative excursion cycles” my strategy is exposed to during various market volatilities. It is one thing trying to simulate this in a backtest but quite another to trade live and have to “forward” test.

My lesson learnt from this is that a large part of my trading plan requires very strict criteria to be met prior to the entry, this part can be measured quite effectively by mechanical means, however the actual trade management also has an element of discretion. This cannot be back tested in my opinion.

Understanding that the markets have predictable nuances does not mean they are mechanical. By using experience and discretion I am hopefully able to navigate, through drastic market movements such as witnessed recently and crucially be able to anticipate or even predict drawdown in my strategy.

By embracing what is now known as “drawdown” it is built firmly into the foundations of my style of trading and understanding your own foundations is when progress can be made towards positive consistency in trading.

Darwin Inception and Darwin Launch November19

The above image shows the calibration of trade size to account is going through corrections in September and October and now accurately tracks (and uses) my available margin appropriately.

The volatility has been a double edge sword, helping this recovery much sooner than my plan but also causing short term concern in February when the crisis hit. Understanding and having trust in yourself and your plan can and will pull you through such extremes.

Traders often build a “system” with a positive expectancy bias, I have arrived at my way of trading by surviving and understanding the negatively expectancy bias and what it means to my money management.

Built into my mindset in trading is this:

Nothing is as easy as it looks,

Everything takes longer than you expect,

If anything can go wrong it will go wrong,

And at the worst possible moment!

Murphy’s Law rules all so expect and embrace it!

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