Calling Time on my Darwinex Project

All time slog

After some considerable time and effort to get to know my Darwin “WET” the synthetic trading algorithm that is supposed to emulate the best parts of my trading account for investors to “trade” with I have decided to take a break from it and focus my attention on a couple of proprietary trading firm offerings from MFF (my forex fund) and possibly FTMO, although I think FTMO need to address their qualification model to eliminate the need for excessive risk, i.e. gambling to get funded. If you want real traders, provide real conditions…

The Darwin model used to provide some promise but sadly the risk manager just isn’t viable for my trading the style, the last 4 trading months have produced 5% return compounded weekly but has shown pretty much zero return for an investor. Couple this with a 1% annualised management fee and a 5% trader fee it just doesn’t make sense for me to invest my time anymore.

Below is a snapshot of WET invested over a period of exactly the same time/amount as two of the most heavily “invested” and most popular DARWINs based averaged in $500 dollars per week over ten weeks and then held:

WET out performed both at the end of July when I stopped trading, this isn’t unusual as there are many talented traders on Darwinex that out perform the top followed Darwins, the fact is there just isn’t enough investment and diversity of funds across the breadth of strategies available to trade. This is evident from the payout page listing the top earning Darwins, only 8 have earned over 50k euros at the time of writing this post and the average time for this is over a 3 year period.

I do feel perhaps Darwinex was before it’s time and somewhere their own strategy got lost in translation in what it tried and continues to try to do. I hope to return soon when conditions are more appealing but in the meantime the most valuable thing I have is time and for now I have to invest that with another funding solution. Adiós por ahora 🙂

Cable 2021 H2

GBPUSD 2021

Cable has breathed a huge sigh of exhaustion after a heady 3 years… Covid, Trump, Brexit, FED. It’s all happened and this year has given me time to plan and map out the next 6 months.

We are at the same highs of Q1 2018 and having formed a double top it will be interesting to see where we go from here. Personally I’m hoping we will hold this range of 1.36 to 1.42 for the remainder of 2021, if it does I’ll make plenty out of it.

Look at this chart below, we clearly have some consideration to the following…

The absolute line in the sand first tested by the Brexit Article 50 announcement in October 2016 and then the 2020 Covid lockdown announcement is about the 1.14 level.

The pound is then bought successively with an implied volatility of some 2800 points and then sold off to the 1.26 level, sold again and then capped four times at 1.33 before been bought again.

We are 5 months into the the current cycle of this 2016 Q2 range extending it’s duration longer than last time. The catalyst to move money up from this level was way back in 2008 but this bounce was on the back of the shocking credit crunch drop in November 2007 from the heady heights of 2.11 (that was the time to go to Universal and Disney!).

Longer term plays for me will strictly be range bound systems, so far the pound seems to have evaded the value buyers below 1.14 but if we visit there again, you know what I’ll be doing.

Q2 Back on Form

75% Hit Rate for June

Well it’s the end of Q2 for me and I always reflect and review the past 6 months at this point. Coming out of 2020 we had loads of volatility, Brexit, Trump, Corona and I can see now that I had become a trend chasing junkie….

What caught me out this year was that cognitive bias or hunger…. trading a trend that simply was never going to happen. Discretionary trading is built on repeating patterns with a judgement call, I recognise now that I was getting stuck and then hammered by a range bound GBPUSD, unable to change my mindset fast enough.

I have friendly banter with fellow traders, most of them use an algorithm of some sort and for the majority of the time they do well. However when they reach strategy exhaustion they really, really struggle to adapt and quite a few of them have given up or completely gone off at a tangent. For me it’s not so dramatic, especially at Darwinex. I can make a few tweaks and take a pilots eye view of the market to trade in sync, which is where we are now.

It’s been a great 3 months with my underlying strategy hitting my personal goals each month. Sadly the Darwin WET is still tethered tightly to it’s risk manager and only taking a proportional position which has held it’s 2021 recovery back. Also despite been super consistent I can see I’m not going to be awarded any additional trading funds via DarwinIA anytime soon (currently languishing in 712 position, urggh!).

Quarter Q2 Shaping Up

Q2

Quarter is shaping up nicely (in the underlying strategy anyway!) with returns hitting my personal goals of 1% per week. I have remodelled areas I thought were weak spots and that seems to be paying dividends. One point was my over dependence on volatility and trend trading. I have brought back in my range trading methods and compromised entries for better overall trade management. So trading GBPUSD with an ATR of under 100 over a 5 day average no longer confounds me, on the contrary by assessing all my previous trades I think I have found a much better and reliable edge but it does require a lot more patience and discipline than I have ever had to engage before.

Resistance Training

Trading with Darwinex can sometimes feel like a never ending weightlifting session. After a few months of managing drawdown the Darwin risk manager seems to go the other way and holds down any kind of fast recovery, this is no good for the trader or the investor.

May June slow recovery despite +10% in the underlying

If an argument can be made to the risk manager along the lines of, “great, protect me from extensive risk if you can but stopping me recover AFTER I’ve taken the hit, well wasn’t it my decision to take the risk in the first place?”

I’ve had this stagnation before with my Darwin WET and it does drive me a bit nuts, with 15% + return in the underlying strategy over the past 120 days (and even this is not actually recorded accurately) I am left once again frustrated with the 6% Value at Risk performance of WET and lack of dynamism from the Darwinex Risk Manager. Having said that it is probably the best at what it does in the “social trading” platforms currently available.

Hopefully we will start to see the risk manager relieve it’s death grip in the next few weeks as my trading history smooths out again and we can return to a reasonable performance more reflective of the underlying trades.

Sometimes it’s just a grind – Darwinex Account

Quarter 1

I like trading most of the time, I commit hours and hours to it. I do sometimes wonder if I have lost my mind though and this year has been a bit like that trying to make my Darwin asset WET fit in and perform.

No excuses here but it’s just been tough. I pretty much just specialise in GBPUSD and to get intimate with it you have to go through the emotional ups and downs of the pair. I’ve seen volatility drop to a mere 45 pips a day recently which is 50/70% down on what we normally trade within. So when this happens life gets tough.

However the bright side of only trading one pair is that as a strategy begins to mature you learn to love the ugly side of the partnership. That’s where I think I’m at now, I’m happy with what I have created and the drawdown will just be a fact of life; my style of trading at Darwinex. People can either live with it or live without it, my faults in the past have been trying to guess what Darwinex want but I can’t, so I’ve stopped trying to figure out the mystery. What will be, will be…

2020 in Profit 13.51%

WET 2020 Return

After a tumultuous year I am pleased to report that my Darwin “WET” crossed the 2020 line in the green, returning a profit of 13.51%

Furthermore I’m very pleased to be allocated EUR 37,809 by Darwinex to trade with for the next 6 months.

The plan in January is to trade micro areas of supply and demand in EURUSD and also selective FTSE breakout trades.

I am concerned about the capacity restrictions that are implemented by the copy trade technology of Darwinex. I will see how restrictive it is to investors with this type of trading. Fast scalps and small pip profits are penalised by latency on the exchange and if my market order entry/exit prices diverge too much from my Darwin WET trades then this will be detrimental.

I’m not too concerned about restricting investors as I only have two at the moment! So I will cross this bridge when I come to it and consider it as a happy problem to solve.

Happy New Year and here’s to a profitable 2021!

Mid Month Update and Wind-down

WET Current Ranking for December

As Christmas fast approaches I am viewing the market very selectively. We’ve had a good month which wraps up a great year of trading, albeit quite stressful at times. This surely has been a crazy 12 months!

Liquidity is unpredictable in the assets I trade at this time of year. I may take a couple of positions on stop hunts in the FTSE as and when they occur and I’m still interested in a GBPUSD set up if it gets out of balance with the ongoing Brexit negotiations.

I think we have a short term pricing for a potential deal, looking at my chart the market is still very bullish about a deal being done or a continued postponement. I’ll say this…. it won’t be the first or last time the big boys have got it wrong. Glad they are not looking after my pension because either call is a gamble unless you’re mates with Barnier and he tells you just before he sends out one of his calculated and stupid market moving tweets two minutes before the London open….. ahem, pass the Croissants while someone counts the Euros..

Chart provided by http://www.barchart.com
Deal or No Deal

For the foreseeable future I will be trading intraday with GBPUSD. There are plenty of opportunities to profit from trapped traders and scared bankers…

Lastly my Darwin WET has been spotted by the Darwinex algorithms for the monthly allocation of funds they distribute to performing traders. This is the fist time that WET has been in the running and would be a really nice additional positive to end the year on, although there is time left in the month yet so I’ll not get too hopeful 🙂

Brexit Trade Paying Off

GBPUSD Trade Idea Playing Out

Finally my GBPUSD trade plan has played out. I was hoping negotiations would have steered the market earlier in late November, however it seemed London was pricing in a positive outcome way too early.

We’ve had very difficult trading conditions since 20th November and my strategy has been pulled from pillar to post managing margin whilst opening and closing hedged positions depending on participant sentiment. This was much easier pre-ESMA rules!

As we move into crunch time I’m locking in profits on this setup that I have been stalking since October. I may end up giving some back to the market but I’m trading it as best as I can. Hold on!

Flat Month October 0.06% return

October 0.06%

I’m closing out October as a flat month returning 0.06% I wrote in my last post about a big change up and I can report on the underlying strategy a very positive shift using my intraday methods.

However the algorithm of the Darwinex risk manager has to aggregate new data to catch up and this is a really, really, slow process.

Below is the Value at Risk calculation for a sample from the past 30 days.

VAR 30 days

We can see the VAR start to drop from 43% to it’s current rate of 26.68% which is moving in the direction I expected, however this doesn’t seem to translate in the same magnitude to reflect positive performance of the asset.

An investor using 3x leverage is placing a trade of 0.13 lots vs my 0.12 lots. The return of each 0.5% positive trade on the Darwin wet based on actual net cash return is about 0.05%

What this means is that if the VAR algorithm doesn’t catch up and begin to reflect the underlying trades more accurately it will be challenging to justify a 0.5% management fee currently charged by Darwinex to investors. I’m watching with interest how this will perform next month.

I intend to trade intraday for the rest of 2020 using a fixed risk of 0.5% per trade on one asset only. I don’t pretend to understand how Darwinex manage the risk and the performance of my Darwin but I am expecting to see a closer match to the underlying strategy over the next 60 days to give investors the benefit of the potential returns whilst being mature about the risk. Building a stable and sizable sample size of 100 trades should help.

Some stats for October WET since the gearchange commencing 13th:

31 trades, 66.67% win rate, 2 losing days out of 13. Nett cash return on equity +6.48%

Changing Gears

I think Lao Tzu said something like “If you do not change direction, you may end up where you are going.”

I’ve spent time reviewing my strategies which work well for me in my other accounts away from Darwinex and compared them with the performance of the Darwin WET. It is evident that the risk manager works well during times of drawdown but is painfully slow at returning at a rate I find unacceptable to increase more risk for better returns. Any form of flexibility or dare I say creativity is simply SQUASHED!

A long term strategy can and does take days/weeks/months to formulate to get the best return. I think active exposure to the market is evidently penalised at Darwinex, any edge I have with this exposure is quickly eroded with an equity recording at month end. When it comes to pounds and pence the logic doesn’t align with my own trading. If a drawdown is recorded on day 31 it’s printed, price hits target the next month and a high is printed. I re-enter on a different asset and the VAR begins to raise reducing any chance of increasing returns in the Darwin. The lag in the VAR risk manager is impossible for me to accommodate effectively using two of my position and swing trading methods.

I am pulling these parts of the strategy from my Darwin WET and have implemented back into it my day trading methods I used earlier in the year. It will be interesting monitoring the VAR over the next 60 days and the Darwin performance.

The limitations of the Darwinex algorithms are very evident when matched with part of my discretionary style. My capital capacity will likely plummet but the performance will increase for small scale trading.

As for how Darwinex interpret my trading, let us see! I’ll give this project another 9 months before I make a decision on the merits of time spent at this.