We would like to introduce FTT to explain better the recent DD of FTT.
FTT follows the same trading system idea, the continuity of a previous movement trading after a pull-back + support/resistance + trigger.
The difference is that the sets of FTT use different signals, filters, triggers and weights of the trades.
Currently JGC trades only one pair and one set of 4 trades/set as it is explained in its topic.
Both strategies work with lots every set, they don’t increase/decrease with the equity.
FTT is more diversificated internally because it trades mainly GBPUSD with 4 sets and EURJPY with 2 sets. Attached you can see the weight in the chart of Mc in 12P where now we can see why 2/3 is GPUSD and 1/3 is EURJPY (4 sets vs 2 sets)
Depending how many sets work, more or less d-leverage will have, which we can check and the number of trades in the trading journal.
The most sets working the most dleverage, therefore the most risk and daily volatility of the Darwin. This darwin’s volatility can be checked in the charts of return distribution, and La chart.
The bigger excursions are when more sets are working, but these are the excursions of the Darwin, not of the underlying strategy; both could be more similar or not, depending of the replication of the risk manager because of the stability of the var.
That’s why I would like to share the evolution chart of the underlying strategy in € to compare with the chart of the Darwin. Attached you are the monthly returns, the DD and the evolution chart.
The chart of the underlying strategy of FTT in darwinex (%), is very similar to the last in €. We can see the same shape, DD2 is slightly smaller than DD1, and the monthly return of NOV17 is also smaller than JAN17.
Bellow we can see the chart of the Darwin, similar a first sight, but where we can watch that the DD2 is much higher than DD1, and the monthly return of NOV17 is also much higher than JAN17.
Now, attached the daily return distribution of the underlying strategy in €, and we can compare with the daily return distribution of the Darwin in %.
182 are the days without trading, and the other more common are 114 days with return between 0-100€, 63 days -100 to 0, and 54 100-200€, similar to the 3 more common of the distribution of the darwins.
But the main difference is the worst excursion negative of the Darwin versus the negatives excursion of the strategy that are joints. We have on excursion of almost -8%, when the worst until that was smaller than -5%
The worst day of the strategy was last Friday November 3th, when the strategy lost -689,22€, and we have another bad day on October 12th of -577,42€, inside the current drawdown DD2.
But if we check the daily candles of the Darwin we watch that -577,42€ produces -4,45% (Oct 12th), and -689,22€ produces -8,51%, very huge non proportional increase of the %loss. If it was proportional, it should be -5,31% and this value would be close to the others in the return daily distribution, and explain also why the DD2 is so higher than DD1
But, I would like to explain what has happened. If we watch the Rs chart where we can check the evolution of the VAR, we can realise why.
Between these 2 days there were an important decrease of the var, that is not obvious to predict with the tools that today we have to manage from Darwinex. I hope that in the future was easier.
But, we can speculate what it has happened. In my opinion, the reason is why the last period of calculation of var (yellow rectangle) the risk has been smaller, because of the market circunstances, and we can see in the chart attached that the setups have smaller d-leverage and their duration is also smaller than other periods.
We can watch that, before and after the rectangle, the duration of the trades are longer, then it is happening that the var is recovering in the last weeks. And all this, with 8 points of Rs, that it is not a bad value of this IA.
Then the fall from 19,99% VAR on oct12th to 13,14% is the reason of the increment of the loss of this day. How? The calculation of the leverage of the Darwin from the strategy is transformed to the Darwin 10% is 10%/VAR strategy.
Suposing the same dleverage (as it was), the Darwin reduced to the half the leverage of the Darwin on october, but in Nov3th only 10/13,14, ie supposing the same leverage of 20, one day worked with 10, and the other day with 20x10/13,14= 15,22, more than the 50% of more leverage, that it explains the big loss.
I would not have explained this, if @isabel03 did not have asked for this DD, because it was the case that it has prejudiced, but other day could benefit.
But, independent if it is the bigger DD or not, the DD is existing, and Nov3th was the worst day since inception, and Oct12th was the second worst, and a 5% of daily loss is a high value.
What did it happen these days?
(1) On Nov3th was a really black Friday… This loss has been created with 2 positions in the gbpusd (one short and other long). The short is the bigger loss, when worked the 4 sets; it is really not common that work the 4 sets, only reserved for the best opportunities, it is really extrange that loose the 4 sets, and it is not common that other position trade the same day, and it is absolutely difficult to loose everything.
(2) On oct12th had also two positions, but one in gbpusd with 3 sets of 4, and one in eurjpy with 1 set of 2. All the trades were also loosers.
Finishing, if the question was if we have done something different, the answer is NO. The systems have been working as planned.
The system, which is underlying JGC and FTT, suffers with erratic markets, and this month of November in the GBPUSD is being really bad for them.
As a result of this period, and last DD, we have taken the decision to improve the internal diversification of FTT and JGC. We are working hard on a system to improve the erratic periods that create these DD.
If we have success, we could reduce the d-leverage of working, reducing the consequences of non-stable var periods, and in the case of JGC, it could work without the limitation created after reloaded. We will see.
Thanks for your understanding.