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.

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.

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!

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!