July return -4.33%

July return negative 4.33%

July proved to be my most challenging month, not because of the big swing in equity draw down on the underlying strategy (-23%) but because of the speed and momentum in which it happened.

A dual result of CAD and USD weakness during the latter fortnight caused my positions to go against me just at the point where it seemed my take profits were going to hit target and I would be flat for the remainder of July (and showing a healthy profit). This is when trading longer term with discretion becomes an extremely tough endeavour and to be fair, where a trader earns the strength of how to survive and thrive or die.

The timing of the £675 billion package with a struggling dollar seemed to fuel an extraordinary buying of EU vs USD. Some 500 points from where my original area of interest in trading this pair was founded. Theories of the market pricing it in previously proved unfounded.

At 1.19 it seems but be stretched but in the back of my mind I still have the speech of Draghi’s “whatever it takes” in his 2012 ECB announcement about the failing currency. Back then it was bought from 1.20 to 1.37.

We now a very different situation driven by a pandemic stimulation package but paid for by the taxpayers of Germany and Northern Europe which is then distributed to other areas of the EU (including France). It seems that political will is once again rail-roading through constitutional and fiscal common sense to protect the EU experiment to the tune of not Billions but now Trillions… and the fight for a slice of that social pie has begun in earnest with some members lining up for a lions share. I sure am glad I’m no politician!

Plan for August

I have mapped out my areas of attack for the next 10 trading days to balance out of this negative position in EUR and CAD. Also because of ESMA rules I have had to increase my margin account temporarily to cover these positions. Once my review is completed the margin will be returned back to normal.

EURCAD Just Keeps on Giving

Entering 5th month at these levels

Since entering this zone post Covid reaction in March we seem to be in a Pivot zone for the 5th rolling month. Bias is presently neutral for me but I have plenty of scope to continue to trade this pair for the rest of 2020.

From April onwards you can see price settled approximately 60% of the time returning to below 1.5300.

Will we see this gradual squeeze upwards since May continue to find stable support above the 1.5300 level? With levels pegged at 1.5500 and 1.5000 there remains a lot to play with..

June Wrap Up 0.73%

June 0.73% Return

We finished June on a 0.73% return on a fairly flat but stable month. I had 6 trades close for the month and have 7 trades which are rolled over into July so we should see a pick up in volatility for my Darwin asset WET early on in the month of July.

With the VAR 6.5% changed implemented by Darwinex at the beginning of the month I decided to segregate my intra-day trading into another account and focus on building a much higher capacity and scalable asset class to handle bigger investments without slippage issues. I can now easily adapt entries and exits within a reasonable margin to accommodate much larger positions.

The underlying strategy produced 4.36% so the new Darwinex VAR model is having an effect on return is it is good that they are offering 3x leverage to compensate giving investors the option of exposure.

July is looking good and I have quite a few options to trade in the planning phased pending execution probably early next week since we have early NFP tomorrow and the US markets closed on Friday.

Happy Independence Day!

EURUSD Levels Shaping Up For Summer

EURUSD Breaking 1.1250 Crucial Level

I trade EURUSD extensively and the break of 1.12500 level this month positions me well to plot my levels and consolidation areas. I’m expecting a longer term neutral bias now we are at this level between 1.1100 and 1.1400 with a possible stretch to 1.1500 for the summer months.

This pitches us squarely at Pre-Covid levels in Quarter 1 and we can now establish trade set ups with more confidence.

Hedge shorts will be in place to cover the 1.0950 areas and long plays targeting 1.1350 to 1.1400 areas. Hopefully for the next couple of months I can continue to pick off 60 to 120 pip range trades.

NO FINANCIAL ADVICE IS GIVEN IN.

Darwinex Updates Management Model

Last month Darwinex re-engineered the risk management calculations of all asset managers. This measure has changed the historical results on my Darwin Asset WET reducing both the drawdown and the return previously reported on my website.

I think the changes are broadly positive for traders and investors. From further studies its does reduce the return for investors but will also help smooth out the risk adjusted return of drawdown from peak to trough. This is mainly advantageous from a psychological point of view from an investor in that the negative return phases should be shallower but the duration is still to be determined by the market.

This is a 3 month period of return. The negative point is -4.07% and the positive point is + 2.15%. I estimate that the previous return would have reported both a higher negative and a higher positive by approximately +/- 2%.

I never exit positions in drawdown until I have positive returns that offset, meaning that my trading style pulls through these troughs to produce profit, so this new calculation will show lower performance and lower volatility to my underlying strategy.

Please be aware that previous posts stating trading history are from the legacy Darwinex 10% VAR model and in future will be reporting using the new 6% VAR model.

May 2020 Close

May return -3.77%

May was a tough month. We had a two trades set up early on in GBPUSD and GBPCAD. The big move short GBP probably attributed to more dire economic news with over £60b additional lending forecast. This of course is relative to the currencies I’m trading against so becomes a cycle of who jumps first and how quickly the country can react to recover the potential slide. This makes for tricky long term trading environments…

Even so, I get my head down and strategise how to recover from the these situations no matter the pressure or how long it takes. I plan for these big moves and wait patiently until it is my turn to take the money back from the markets. Counter trading becomes as important as entries and it is fundamental to my money management plan; this is why I advise potential investors to realise that drawdown is inevitable and must be endured. It is easier to ask if an investor who is already sat on a cushion of profit but is particularly difficult to a new investor to experience this in the early days.

I have part of the GBPCAD trade to manage and have started an EURUSD trade for June. Eyes are also on EURCAD and NZDUSD for possible hedges.

June is going to be an interesting month for me. Darwinex is implementing a wholesale change to the platform which will have a significant effect on the Darwin WET. For now I am open minded about the changes and will update mid month when I have a better understanding of the changes.

April Close +3.4%

April close returning 3.4% for WET

The plan for April was to track and trade EUR crosses which worked out pretty well for the month with some early results in for EURUSD. I traded only a couple of pairs to limit risk exposure while the markets establish obvious zones for me to assess. So margin use for this month has been conservative.

The huge expansion on EURUSD has set my levels further out than I have ever traded within but this presents me with more opportunity to plan set ups. My current level high of 1.12 takes me back right to Sep 2018 and the sell side level at 1.0627 goes way back to Feb 2017. So until these break I have plenty of price lattitude to play with.

April closed as another profitable month returning a 3.4% on my Darwinex Asset WET. Slightly lower than I anticipated given that my underlying strategy returned 7.83% to my account. This is where the risk manager throttles in or out for the investor and I think it could be accountable to the intra day trades I take on mainly GBP. These trades often have a lower take profit and because of the short timing are inherently more volatile compared to my longer term trades.

I am working on the intra day plan to add bigger take profits to hopefully fill in these risk management interventions.

All in all it has been another great month and May is already lining up on my charts for set ups. I’m looking forward to the next 4 weeks of potential.

Investment Portfolio Forward Test

Darwin Asset WET is “tethered” to another pair of Darwin Assets

I have a theory about investing with Darwinex Asset Classes “Darwins”and being the trader of the Darwin Asset WET I am testing a method of identifying other Assets by “tethering” them to WET.

Using my own metrics and performance data I aim to find similar performing Darwins but with limited correlation in parts of the underlying strategies but crucially with correlation in other elements of the strategy.

Additionally I will be using a fractional investment method over a period of time to allocate the $15K demo margin to the three Darwins which will be: WET (mine), SYO and HFD.

Monitoring the performance of the traders will be at high level and light touch, as long as consistency and activity is stable I don’t need to spend too much time on this. Perhaps an hour per week. The Darwin Assets will be changed if my criteria isn’t met but ideally this is a last resort due to the short timespan of the test.

The aim of this test is to achieve a return above inflation on cash held over a minimum 3 months to a maximum 7 month period after costs.

I will update the progress further down the line.

As usual, this post IS NOT financial advice!

Demo Investment Closed in Profit

16% Return

The simulated investment in my Darwin asset has closed today with a 16% return over a 4 month period.

Investment & Darwin WET Performance

The above shows the investment period and the performance of the Darwin WET. If you had invested when the Darwin was still calibrating at the start then this would still be underwater, so a money management strategy is important with an entry and an exit to be given consideration.

I’ll be posting another demo simulation with two other Darwin Assets from different managers using an averaging model to experiment with a theory. Update to follow…

Performance Fees

The above image shows the performance fees due to be paid; because I closed this investment prior to the high water mark payment been due Darwinex retains this fee.

Fees paid are $36.04 + $295.18 for this investment period. Ask Darwinex about other fees which may be due including any other commissions or currency exhange rate differentials.

Crystallized Profit

So after 4 months the demo investment in WET has crystallized with a $10000 investment at a nett profit of $1324 or 13%

As with any investment this could have gone the other way and a max 10% loss I had in place could have been -$1324 depending on how the asset performs and how you handle drawdown. Please read through my earlier posts and ask yourself, how would you react when your investment is going down (which this did)?

Watch out for my next post with a new demo investment simulation model using real time trading records!

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!