May be it is because the divergence?
A Darwin tries to normalize the VAR at ~10%. So if the trader ist trading with very low leverage on his account (like ERQ), Darwinex increases the leverage to an estimated 10% VAR.
If a trader is trading with a very high leverage on his account, Darwinex reduces the leverage.
wow, pretty intense intervention into a traders strategy.
@NemesisCraze wow, there are several things concerning investors, ERQ and Darwinex I don’t quite understand for this case, but at least I now understand the reason for that return difference and that is enough for now
This case is not due to divergence. I would definitely reading this article to understand the difference between a DARWIN and its underlying strategy: http://help.darwinex.com/darwinex-for-investors/darwin-vs-strategy
I hope this proves useful!
It is just because the different or risk. Your risk is 0.06% for your own capital while the darwin risk is 10%, so what you do with your own moneyi reflect 166 times in your Darwin (they are some other variables, but basically is that). In order to have exactly the same results in both you should run your capital at 10% of risk.
With a Capacity of 1.8 and a divergence of -0.05%
I think you coud raise your max AUM to 1 million and re-open ERQ .
Congrats for the results from a satisfied investor!
Almost as important as the lack of high resolution in DARWINs’ equity curves which would allow investors to easily spot potential big risks is the fact that “La” stats (-> Loss aversion) are flawed on several DARWINs. Here is an extreme example regarding ERQ:
Where is the “+67 % Close” in the equity curve? Of course it is not “hidden” like some DDs ;-). It simply never happened. And such errors make some DARWINs seem to be very good managed regarding reward to risk although they actually are based on gambling…
Thanks for pointing this out.
Let us review it and see what happens here.
On the other hand, it seems the trader took a very large trade compared to the overall strategy.
Yes, this seems to be the case. But when clicking on “La” on any DARWIN’s site you get displayed the respective statistics for the DARWIN itself and not its underlying strategy. However in both cases “67.87 %” of gain is wrong and distorts the calculation of the real “loss aversion”. And as already mentioned this is not the only case whith wrong data…
I agree that La score is flawed.
If you had spent more time learning all the attributes/indicators/charts on Darwinex, I am sure that you would not have made such comments.
The lower part of the chart does NOT show the real return of the DARWIN on the trade. The ‘+67%’ is the theoretical return of the DARWIN ERQ on this trade IF there is no Risk Adjustment.
Yes, this trade in the underlying strategy has a very high leverage compared to the historical trades. I did it deliberately so that the VaR of the underlying strategy can be increased a lot. It is not gambling, because the maximum allowed D-leverage of DARWIN is 15 AND the trade only lasts a few minutes. The ‘Return / Risk’ on the DARWIN page is calculated from the real returns and risks of the DARWIN, so the theoretical ‘+67%’ return will not affect it. However, it DOES affect the calculation of La score, and this ‘+67%’ trade significantly improved the La score. But you can think the other way: what if this trade ends up with ‘-67%’ ?
I appreciate your feedback to the “La case” mentioned above. Let me pass a remark:
1.) “La” actually considers the risk adjustments to VaR. That’s why on the y-axis the following text is displayed:
“Positions Returns Adjusted By VaR (10 %)”
However I admit that this is confusing when reading the following explanation to “La” (the latter seems to be not accurat):
In most cases La stats are correct and actually consider “Positions Returns Adjusted By VaR (10 %)” as they should. But unfortunately there also are several errors on many DARWINs (see above).
2.) I already told two Darwinex staff members about the “La problem” and both had no explanation for said issue. So it seems to be not a simple misunderstanding or due to my lack of knowledge about DARWIN stats as you assumed.
3.) When saying “And such errors make some DARWINs seem to be very good managed regarding reward to risk although they actually are based on gambling…” I didn’t refer to ERQ. I only mentioned your DARWIN because of the extreme “67.87 %” case. I personally conisder ERQ as one of the best products here on Darwinex and even was invested in it for a while. The reason why I withdrew was/is that I decided not to put my money into DARWINs anymore that are based on high winning rates with rare bigger losses. The problem is that it is very hard to predict their distribution in future simply due to the lack of representativity within past results. It’s just a statistical problem that can’t be solved resp. you’d need decades of track record to get an appropriate representativity. But that is just my 2 cents here…
4.) “Return / Risk (since inception)” on a DARWIN’s page has nothing to do with “La” stats but is something totally different. A number over 2 has statistically beaten 97.7% or more random strategies etc. I personally would prefer something like a profit factor here but that’s an old discussion…
I wish you maximum success with ERQ and CWT,
The ‘+67%’ is the ‘Position Return Adjusted [ONLY] By VaR (10 %)’. That’s why I said ‘the theoretical return of the DARWIN’. The ‘Risk Adjustment’ I mentioned does not refer to ‘risk adjustment to VaR’. There are two kinds of risk adjustments in addition to ‘risk adjustment to VaR’. One is position adjustment ‘by our risk manager since it considered to be an over-leveraged one when compared to its most recent trading history’. The other is ‘leverage ceiling’ which limits the maximum D-leverage of any DARWIN to 15.
I already explained why I took this trade in the previous post. The purpose of this high-leverage trade is to increase the VaR of the underlying strategy while controlling the risk of DARWIN. This trade leads to sharp drop of Ra score whatever the result is. If the trade did not go well, La score would also fall considerably. I have thought about the possible scenarios before taking the trade. Your comments sound like some DARWINs take advantages of Darwinex evaluation system, but I think that no one can manipulate it. ERQ has been changed a little since last year. I only took some particular setups of my trading system. The trading frequency is much less than before. I do not want to talk about my plan here. I just want to stress that I know very well what I am doing.
I never said ‘Return / Risk’ has something to do with ‘La’ stats. Actually in the previous post I said that the ‘+67%’ trade affects ‘La’, not ‘Return / Risk’.
Wishing you all the best in your trading.
When considering the official explanation of “La” (Loss aversion) by Jesus according to
then I can’t see any statement implicating that the y-axis shows “Positions Returns Adjusted By VaR (10 %)” WITHOUT risk adjustments regarding de-levareging and ceiling. Also none of the Darwinex staff members I have asked for an explanation in said context confirmed this. But nevertheless your depiction would actually “decrypt the La spiking issue”. If your assumption regarding the calculation of “La” stats is right, I’d request Darwinex to officially confirm this and also modify the respective website (see above). Furthermore I personally think that it wouldn’t make sense to define “Position Return Adjusted By VaR (10 %)” [which is displayed on La’s y-axis, as said] as an entity WITHOUT risk adjustments regarding deleveraging. Because VaR will be dramatically increased if a trader suddenly uses position sizes that are many times bigger than normally whereby the strategy remains the same.
It is not an assumption.
I had contacted support regarding this in the past, if i recall correctly they also stated that risk adjustment isn’t applied there - which I agree that doing it this way doesn’t make much sense
Just to cool a bit the debate , let me ask something about ERQ DARWIN in order to keep learning about Darwinex secrets :
One ERQ closed and one ERQ open : how was it handled ? Renamed ? Etc.
v3 darwins were pre-reloaded running at 20% var .
Thanks, now it makes sense !
Underlying strategy max drawdown DARWINEX STATES is like 2%
And this strategy captures like under 2% per year!!
And with this Gain to Pain — or ----- average profit to max drawdown----- somehow it captures Risk Adjusted Returns of appox 23% per year on the DARWIN.
same basic ROI as BUX.
But my underlying strategy captures like 50x more.
Ho hum, such is the easy street once you have huge assets under management.
I said that before, in Darwinex you have to change your behavior, it is about the Darwin, forget the underlying strategy. That´s why I repeated many times the VAR shouldn´t exist, so all traders and investor run the same risk…This trader risk peanuts every day. Some investor and some traders here say, I TRUST a darwin with high equity…really? I can put one million and trade 0.0001%…