CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 64 % of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Demo0. KeepDreaming

Hello,
This demo gonna be like a stress-test to some of my manage criteria in a simple way. And try to prove the point that, with a conservative start and managing the risk, it’s hard to make a mess.

I want to keep my lost aversion under control.
I don’t expect profits (random Darwins, but who knows…), only don’t make a mess.

RULES:
Selection criteria are not allowed.
The management must be for a B&H portfolio, trading approach is not allowed.

10K; Leverage x2; 10 Darwins

Darwins:
Filter “NEW” + Exp<2 + TR<3 months (future performance random) + zero info available form provider (as maximum only posted at description) + 0 investors
*Only 1 Darwin by provider allowed
The first 10 with this criteria:
DYU FLQ KEA KHL MZO PWQ QRK WDE WMI ZUR

Look “inside” the Darwin is not allowed during all the test.
If a Darwin is closed or abanoned (1 month without activity) I will sell it and select a new one (if the closed p/l is <0 it will be “transfered” to the new one).

The test is failed if, at any moment:
EQ <8K (-20% loss); but is expected significantly less due a conservative management aproach
Any Darwin has: closed p/l + open p/l <-200 (-2000/10)
*Flash-carsh events tolerated, that’s a mistake due a poor selection criteria,(not allowed in this test).

My main idea in order to success:
Large SL (like a firewall, around -25% DD). Small enries on DD’s averaging down using pending orders (oviosuly with potential lost predefined). Upscale on futures DD if the Darwin makes news highs and I’m able to rise the SL. Not risking all the -200 at the first try, in order to, if the Darwin touch the SL, have the chance to have a second try (only if the Darwin deserves it and seems it’s solving the problem). If the Darwin is making profits, at highs sell and buy again in order to leverage them and upscale on futures DD.

The test will end when:
All the Darwins reach their SL. The results will be evaluated.
If selling (at any time after 6 months) all the active Darwins in the quote of their SL it would generate profits to the portfolio (the test is valid).
*I won’t be managing the test forever, if the fact that I reached the target is obvious, I’ll end the test.

The demo starts this weekend.

4 Likes

Such a full-scale experiment :sweat_smile: !

Wish you the best !

3 Likes

It’s obvious to me that the key to avoid the failure of the “test” is the money management (fit the size of the entries to the enter/exit levels, in order to not exceed the maximum potential acceptable lost, and upscale only if I have margin).
How good/bad are the rest of the rules (selection, timing, risk and optimization of the portfolio) are irrelevant for the purpose of the “test”.
This topic is not to debate about pros and cons about money management, but I think thaht underestimate this “tool” is one of the causes of some shared portfolios losing too much (according to the opinion of the investor).

Before posting the first update I want to post my noob guidelines (they’re only FOR ME) related to the “motivation” of this demo: first aproach to darwins investment and expectations.

  1. My attitude will be: if the portfolio makes profits, ALL the merit belongs to the darwins and the providers. If the portfolio loses, ALL the guilt is mine.
  2. I need mental stability (I don’t want to feel negative emotions) in order to not make huge mistakes.
  3. It’s essential to know which is my limit of lost/risk (and try to manage in order to avoid achive that limit).
  4. A Darwin is a new asset with a lot implicit uncertainty. “Bad phases” (situations with low teoric probability, or simply unforeseen) soon or late will come. So underestimate the probability of them and don’t be ready to deal with them is a mistake.
  5. It’s better for me start conservative (avoid being in a potentially “catastrophic” situation), and evolve my management progressively (more deatils will be in the nexts demos).

This is just the “theory” (Alice in wonderland). The reality will be cruel.

Thanks for reading, feel free to do constructive criticism (trolls and spammers will be ignored).

1 Like

JULY UPDATE

Resume:

2 entries (averaging down): FLQ MZO QRK ZUR
1 entry: KHL PWQ

DYU and WMI have been adandoned, and haven’t given any entry, so I’ve discarted them and selected 2 new: MLM VTO

Actual:


Potential teoric lost (investment, average quote, SL):

FLQ: -94,47
QRK: -91
ZUR: -90,25
MZO: -90,27
PWQ: -44,94
KHL: -44,91
Portfolio: -455,84

The portfolio is very young and under construction.
Considering the remaining liquidity and the actual VaR (around 1%), the volatility is very low. Performance data: (max: 0.53%; min: -0.32%; actual: -0.28%) .
Zero sell orders have been executed.

Posting an screenshot of the portfolio or of the closed p/l has zero interest for now (at least for me, if you want to see it just aks for it and i’ll post it/them). The same for if you want to see the scpecific timing and evolution of any darwin.

1 Like

AUGUST UPDATE (sorry for the delay, busy week)

Resume:
Only KEA hasn’t given entry yet. The rest are (still) in DD mode (some are in range, others are close to the SL) and don’t accept more investment (the potential lost of each Darwin is -90 aprox).

Actual situation (8/9/19):
VaR of the portfolio: 1,48% (it’s approximate, correlation between Darwins is N/A due too short track record).
Potential teoric lost of the portfolio (all Darwins touch their SL and none of them deserve a second oportunity): -816,92 (-8,17%).

Some ideas:

  1. How is performing the portfolio it’s not “nice”. But: a) only 2 months and 2 weeks b) I’m buying during a DD, and I don’t have a “magic rule” to buy just before the start of the recovery (?, random Darwins). So it’s time to wait and see the evolution.

  2. There’re some pairs of Darwins that are performing in a very similar way. It’s too soon to say that one of them should be discarted (criteria of selecting/discarting Darwins are not allowed, but analize the effect of correlation can be interessitng).

  3. I want to say that I don’t like the actual rules of the management (are just some simple rules in order to make effective money management). I think there are concept errors and a lot of margin of improvement. But another purpose of this experiment is start with simple rules and change them (once the mistake/decision has been done) to the rules I’m using in my “real” demo.
    Befor the first update (timing of entry) I will wait to make at least one entry on KEA, but I advance that a rule like “wait to X% of DD (or aprox) and then buy” it’s not good enough (obviously it’s just my point of view).

SEPTEMBER/OCTOBER UPDATE

Resume:

KEA had a small DD (-5% aprox) so I could buy a little (was the last darwin in “waitning for a DD” mode). Since then almost every day has done a new ATH.

4 darwins reached the SL (at -25%DD from ATH):
MZO (-88,66, low odds to have a second try, actually is at -40%DD). QRK (-89,08,sold at the lowest and have recovered a significant part of the DD, probably will deserve a second chance). ZUR (-78,55, sold 2 days ago, to soon to make a decision). PWQ (-86,64, sold at the lowest and recovered a little, almost 1 month without trading and his Equity is zero, so I assume the trader has given up, so discarted).

PWQ has been discarted, so I had selected a new random darwin with the selection rules. ITN (in “waiting for a significant DD” mode).

The others darwins are still in the same DD (no new ATH, neither reached the -25%DD SL).



Actual VaR 1,18%

Closed P/L + Rebates(+) + Performance fees paid(-) = -345,04 + 20,83 - 0 = -324,21
Potential increment of the closed p/l (invested darwins touch the SL, with security margin for negative divergence and bad execution) = -490 aprox
Total= -814,21 (-8,14%)

My thoughts:
This part is a detailed reflexion about what happened, possible causes and possible improvements in the management. If you’re not interested don’t waste your time.

In absolute terms the actual performance is precfectly tolerable, but considering the low risk, low VaR, low ratio invested/liquidity the problem is evident. In my opinion there are different causes:

  1. The darwins selected for the portfolio. It’s rasonable assume that with the actual selection criteria (“NEW” + less than 3M of TR + Exp<2 + unknown trader) the probability of selecting a non invertible darwin is high. Add to this the filter “NEW”, by default, list the darwins by return, so when I select a darwin normally had been performing well (so more odds to start soon a significant DD).
    Only KEA is the exception (at least till now), the rest suffered at least -15%DD from ATH after the first buy.
    When I started this experiment I was aware that this could happen, so I’m not going to change the selection criteria (the process was/is: select a darwin, if it’s good it will remain, if it’s bad will be discarted and select again. the bucle will continue till all darwins are good, and meanwhile assume low risk. This is the “ideal” way, maybe I will be tired/bored before…).
    But what happened suggest that implement some criterias in the management in order to take defensive decisions if a darwin(s) are having a too much negative impact in the portfolio wouldn’t be a bad idea. I’m not going to implement that yet, it will come in futures updates.

  2. The exit rules. This is a problematic criteria, when sell a darwin? In this experiment the trader is unknow (uncertain about his/her talent to solve problems) and it’s not possible to “look inside” (trading journal, VaR/Rs, evolution of the scores, etc…), so I have to make the decision only looking the TR. But the TR are short (the longest has 7M), so it’s not possible to have an idea of what’s the “normal size” (and also I don’t like this approach, I don’t think that a “past normal DD of X%” it’s extrapolable to the future).
    Considering this, I started the portfolio with a standard SL at -25% DD (with a fixed target VaR of 10%, not tolerate at least a -20%DD it’s a nonsense in a B&H portfolio). I was aware that in some cases would be a good decision (MZO case, actually -40% from ATH) and bad decision (QRK actually -15% from ATH).
    So I was aware that a significant number of darwins could reach the SL (point 1), and maybe some of them could recover. That’s why I decided to not risk all at the firts try, to assume less potential lost and have a second chance with those that survive (missing a significant part of the recovery).
    Although the reasoning has some logic, a “sell low and (maybe) buy high” sounds a mistake. So in this expereiment the SL should be used to make a defenity discard decision, so rise the SL wouldn’t have been a valid solution in ordert to make less problematic the past bad performance of the portfolio. But before evolve the exit/re-entry rule, I want to “complete the mistake” (with a little of luck I will re-buy QRK next motnh).

  1. The timing of entry. Buying at highs doesen’t seem a good idea (specially with my selection criteria, maybe one of them will be the new HFD, but I don’t think so). So if I want to buy in a DD, have a good timing will be ideal. It’s impossible for me to buy at LOW, so I’m happy with a good average quote of entry (if the DD is small assume a small % of the increment of lost availavle, if the DD continues asumme more %).
    Till now I had a simple rules: at -5%DD BL order assuming 50% of the lost availible and at -10%DD BL order assuming the rest [I sarted with -7.5 and -12.5 with the first 2 darwins, but I changed because I wanted to make the firts buy sooner, thats why FLQ has more investment (has a better average price assuming the same lost). It’s interesting to check the effects of this small change: FLQ and WDE are in similar situation right now (-15,13%DD & -14,73%DD) and the open p/l are -0,64% and -7,3% (with +2,5% and -0,07% of divergence), so even discounting the efect of the divergence the consequences of having a better timing are significatives].
    Although I think the main cause of what happened to the portfolio is related to the point 1, would have been possible obtain a better timing of entry, and that would mitigated significantly the bad performance.
    Criteria improvement: work with BL orders in fixed levels are discarted (if a darwin is in DD with an interesting price could be a lost oportunity if the BL leves is not reached; and choose only 2 fixed leves discretionally is too random).
    I want to start buying even if the DD is small (even if the increase of the investment is small, I don’t want to feel that I missed an oportunity). I want to be “full charged” (assume all the available lost) only if the DD is really significiant. So, provisionally, the range will be between -2.5% / -15%. Meanwhile the DD is small i will buy direct to market, if the DD starts to be interesting I will work with BS orders (trying to follow it during the fall without buying). The % of the assumed available lost will depend of how deep is the DD (considering the provisional range).
    This criteria should be more efficient with volatile darwins (with drodawnless darwins like HFD or ERQ wouldn’t be an interesitng rule of entry), but considering my selection criteria it could work, so this evolution of the rules of entry starts today (although for now only KEA and ITN can be increased).

I will update the topic when somthing “interesting” happens.

1 Like