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.

September Close +6% Return

September Closes +6%

We close out September with a +6.11% return on my Darwin asset WET.

All direct USD positions are flat and I will not be planning any overnight exposure until after the presidential election.

The plan for the last quarter of the year is to employ one of my mean reversion strategies on fairly slow moving cross pairs but have enough exposure to GBP and EUR to capture the Brexit swings on the pair as we approach the inevitable death throws of final wrestles in the negotiations.

Depending on how this performs I may well reintroduce my day trading GBP strategy into the portfolio. This is very effective but the duration of the trades normally drags the capacity and divergence of the asset down, thus creating slippage for investors. I’ll review this in the coming weeks after I have made some calculations.

I am still trying to figure out the Darwinex value at risk multiplier. The risk manager appeared to work well during the drawdown I’ve just traded through however it is a double edged sword in that it doesn’t seem to recover fast enough to reward back positive returns. As this is proprietary system I have no information to help me manage this as effectively as I would like, it’s more by trial and error which is not an ideal situation.

One thing for sure is that I will not be chasing it by changing my own strategies. I’ve been there before and will not return to go down that rabbit hole again!

Currently I have two positions building in EURGBP and AUDCAD. They are correlated but provide enough variance to spread my risk. I’ll aim to update mid month with an update on the plan.

Toil and Trouble

Dollar weakness continues to dominate the global currency markets, will the seasonal trend of global accumulation of the greenback pre-election change the course of the decline? The FED printing presses are at full tilt so who knows..?

Pulling back against the weakness

The weeks still continue to test my strategies and resolve as a trader. You either have already developed a mental toughness to survive or you need to. Dealing with the inner turmoil when things aren’t going to plan is where you need to be on high alert to making decisions on the spur of the moment. It is very easy to do and often (if you are lucky) a confirmation that you have made a good decision when in fact all you were was just lucky. If you make that call, get unlucky, then that is when you can spiral out of control.

As a discretionary trader I plan trades based on systematic entries and the statistics of past outcomes to provide a level of probability for the trade idea. The markets in 2020 will be remembered for testing every trading idea I have ever come across and executed.

Working through sustained and deep drawdowns despite all of the macro and fundamental data being in your favour defies the logic, the intelligence and eventually the endurance you have invested in the time putting it all together. Oh and it costs money!

I have been working my plan to pull back into the green and on every occasion of just about getting there the market draws away from me, literally within a few points…. So the evolution continues to play out with my trading plan and strategies are scrutinised as objectively as I can manage under the circumstances. Each time we should continue to chip away and the evidence of growth is beginning to show its tender shoots of promise.

As we move into Quarter 4 my intention is to eliminate direct USD exposure before the crazy lead up to the US Presidential elections and have positions in cross pairs which can be hedged out nearer the time. The investor value at risk for my Darwin WET has been much too high and I will attempt to bring that back down in the next 3 months.

With Covid, US Elections, futile FED and ECB battles of inflation management, potential regional unrest with Turkey(as well as a failed Lira which Europe has exposure) Brexit and more economic/political pressures for the Euro looming on the horizon we will have to be patient for trade ideas to play out long term and mature in our outlook when trading or investing in such an arena.

Dollar Weakness Continues to Test

COT Report Study – Potential Exhaustion Point

August has continued to be a difficult month for me. The dollar weakness has exposed my EURUSD position and the speed of the move up from 1.14 prevented what seemed like an unnecessary hedge at the time.

Part of this reasoning was the extreme exposure of Asset Manager Commitment currently at all time highs. When these extremes get tested it is a reliable sign that a longer term reversal is forming.

We could be at this point at 1.19 or 1.20. The fleeing from USD to Gold and combined with a likely trillion + Euro bailout has maybe contributed to the momentum of the move. I am not convinced that this is a sign of Euro strength and I still feel Euro bearish at least short term.

Comparing EUR with other crosses, especially EURCHF indicates that a EUR bullish outlook isn’t a valid one…yet.

With the Gold rush taking a breather the USD still remains weak as the China trade deal and further Covid stimulus packages are stymied by Washington politics. Although the core fundamentals of the greenback do appear to be strengthening against this bearish backdrop of overall opinion and media consensus.

I am actively re-balancing my USD exposure although whilst we still close below 1.20 currently comfortable managing my position which still has bags of potential for a positive close in August.

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..