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Came back to 3 levels of VAR for every Darwin

You wrote this:

And maybe I still don´t get it, but reading your example I understnd you are suggesting to an investor that investing 1000Eur at 10% is same than investing 5000Eu at 2%, and this is not correct. It is the oposit, if you invest in a Darwin 1000Eur at 2% is the same than investing 5000Eur at 10%. As lower the VAR is for a Darwin as high the risk it is for the investor. On the other side, it is the oposit for above 10% VAR. As higher the VAR over the 10%, the risk for the Darwin is lower (only the risk for the trader and his equity is higher). Please, let me know if I missed something.:innocent:
BTW, I don´t pretend to be right, I am just trying to clarify this point (I think it is very important for both to understand it well, traders and investors).

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Hi @Forexintradiadarwin,
I guess you still don’t understand what I want to say, so lets see if I can explain it a little better.

I wrote that sentence in response to this message:

@LenanaPeak was suggesting to have a maxium VAR of 10% if underlying strategy has a VAR above 10%, and have a variable VAR if underlying strategy has a VAR bellow 10%, which means that Darwins (not underlying strategy) would have a variable VAR, and not a fixed one at 10%.

Now, considering a variable VAR for DARWINS (forget about underlying strategy), it is similar to invest 1.000 EUR into a Darwin with VAR 10%, than invest 5.000 EUR into a Darwin with VAR 2% (VAR 2% in Darwins doesn’t exist right now, but it was what @LenanaPeak was proposing).

That way:

  • 1.000 EUR * 10% = 100 eur maxium risk per month (statistically)
  • 5.000 EUR * 2% = 100 eur maxium risk per month (statistically)

I hope I have explained this time a little better.

Does it makes sense now?

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Yes, putting all together in this example, that´s correct and easier to undertand.

Just a comment: if you take the other example I pointed in my previous comment and you isolate off the whole context, it could lead to a mistake (as it happened to me), and because this is very important point I considered it worthed to make it as clear as possible. Also, because I have seen this mistake several times in the forum…
Thank your your patient.

Thanks! Probably my mistake for not being more specific.


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Which VaR would you assess to this trackrecord?
I would state that monthly VAR at 95% confidence for this CTA is 5%
We have a max monthly loss of 8% and a max DD of 17%

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The other way is classical economic theory equations.
Annual Sigma --> Monthly Sigma / MathSqrt(12)
95%/5% confidence --> Var=1.96 Sigma
Var(Monthly-95%) = 10.86 * 1.96 / 3.46 = 6.15%
(Annual Sigma = 10.86 from the previous link).


Simply that.
The most successful traders, work with VAR <5% (there are many examples, among which I follow, ZVQ, ERQ, THA, NTI, STV …) or a tad more, 6 or 7%.
There are very few good examples of strategies with risk of 10% or more.
But, if as is my case, we work with risk of the environment of 2.5% in the strategy (one of my darwins is HGO), the investor multiplies the movements of the same by 4 (in a not perfect but acceptable calculation). In addition, going from working with 2.5% to 5% to try to get closer to 10%, apart from that it is not at all clear that it is very desirable, it means changing lots and capital accordingly, and the SCORE manager of DWX takes a while more or less long in adapting to the new situation, so the SCORE, in that month, suffers …
But this I think is NOT the important thing: the fact is that for a VAR of 10%, we have an average annual target yield of 25% as very desirable, with a maximum loss of 20-25%, also annual. The famous ratio Return / maxDD in annual format, where anything greater than 1 is a great merit (because, after 5 years, if every year has occurred that case, the composite performance will be 1.25 ^ 5 = 3, ie , the 300% yield, while the maxDD will have stayed at that 20-25%.
Realistic goals and in fact, very very good.
But a 20-25% maximum annual DD is enough … the percentage deceives, because the investor sees what are the euros, dollars or pounds lost … perhaps it is little for a portfolio of € 1000, but much for a € 20,000 and very much for a € 100,000 or more … for me, go through -10,000 or -20,000 € losses seems to me excessive volatility (despite being very profitable in the long term!) And that if You get the returns, because if you had 50,000 pounds and after 5 years have multiplied by 3, and you have 150,000, that 20% (for the same VAR …) will be 30,000 pounds. If, after winning 100,000 pounds, a DD of € 30,000 is better, but the days go by and the number is undermining confidence …
Would not investors sleep much better, especially those who have more money and therefore more confidence, with a VAR of 5%?
And it is not a 12% of annual objective profitability an excellent result, that practically does not give you any other asset ??
What do the forum experts say?

According to this study by @JJENSLOPFAM the average is annualized 7% with 25% DD,ZXW.4.5,EZN.4.2,NTI.4.12,JMC.4.1,DAS.4.1,BSL.4.23,BOT.4.17,ALN.4.3,THA.4.12,SYO.4.24,WFJ.4.13,ULI.4.2,SCR.4.5,PUL.4.6,MYQ.4.24,JGC.4.8,ERQ.4.4,CBY.4.14,LZL.4.23&share=1
This is my backtest: less than 14% leveraged, so 20% var


I suggested in Oct 2016 that Darwinex set a VaR floor for all strategies (back then the VaR of DARWIN was 20%):

In another post in Nov 2017, I talked about the idea of two Exchanges:
‘I think Darwinex should provide more options to attract traders who want to generate stable 10-15% annual return with around 5% drawdown, which institutional funds are very interested in. You cannot ask them to invest half of the money in DARWINs of 10% VaR. It is not like 2 * 1/2 =1. Darwinex Exchange could be divided into Exchange A and Exchange B. A different risk manager can be designed for DARWINs in Exchange B, not just 5% VaR.’