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My Live Portfolio - The What and The Why

Hi everyone! My live account is located under a different username, but no matter. First of all, I would like to thank @Quantessence for introducing me to Darwinex (the email you guys sent out in 2017 after migrating here). Moving on!

Diversification
Before I start talking about Darwins, let us talk about diversification. The point of diversification is NOT to maximize the diversification factor shown in darwinex portfolio, but to actually DIVERSIFY your risk across assets so that when major event hits, only a portion of your money is affected. When I was first trying to allocate my money here on darwinex (thankfully only on demo) I initially got tunnel vision trying to actually maximize the shown diversification factor while forgetting to actually diversify. Then boom, brexit news actually shook a good ton of EA based Darwins that weren’t correlated, and that was a wake up call. Remember, while normally uncorrelated, many assets become correlated WHEN YOU WANT IT THE LEAST, meaning when shit hits the fan. So we also have to consciously, manually choose Darwins to the best of our ability so that their underlying assets and strategies are also uncorrelated.

Buy/Sell frequently or Hold?
Why does any trader/strategy ever open a trade? Because they think that the market is going to go their way. So if I were to be buying and selling darwins regularly (tyring to predict highs and lows of a darwin), I would have to be thinking that I KNOW BETTER THAN DARWIN PROVIDERS about the direction of their underlying future asset prices - and to be frankly, I am investing my money in Darwins because I DON’T KNOW BETTER. Of course there MUST be exit conditions, but chaos of the markets can send even golden strategies into drawdowns, and that does not mean the strategies suddenly stop being golden. Shortly speaking, I am going to be buying darwins and holding them, and more on the details later.

Loss averse Darwins
Loss aversion implies systematic behaviour of thinking that market is going to go your way when IT IS GOING IN THE OPPOSITE DIRECTION. I think such thinking MAY hold systematically true BUT ONLY in for short time periods. So any darwin with LA < 5, won’t be considered if average trade duration is > 10 hours. The shorter average trade duration for loss averse darwins, more forgiving I will be towards their loss aversion.

Portfiolio
Now, I am a little biased (read: in love) towards component based anything. I am dividing my portfolio into 3 components. Let us assume that I have $30K to invest (My minimum per darwin rule is 3.33%, equating to $1000 in this scenario, meaning nice and round numbers). At first I wanted to set a hard rule that nobody gets more than 10% of my capital, since nobody is that special of a snowflake - but then I could not find enough good darwins so I had to break this rule. In the future, when I can, when there are enough excellent darwins, I will set hard limit of max 10% capital per darwin. My aim for diversification factor is 60%.

Component 1 - 1/3 of my money (33.3333%), $10,000
I like to call this component my cash cows, or best of the best. I am actually quite lucky that darwins in this component don’t clash with other parts of my portfolio - let me explain.

  • 1.1 THA - $5000 (16…66%) - I assume everyone is familiar with this darwin. Return/Risk since inception is 12.50. It is insanely good. They trade a variety of currencies, but more importantly - THEY TRADE NEWS. It is not an automated strategy.
  • 1.2 SYO - $5000 (16.66%) - again, I think everyone is familiar with SYO. They trade stocks and gold. They don’t trade that frequently. I am not sure of it is an automated portfolio, but there is nothing better to go here. SYO has almost 2 years of history, and an exceptional R/R since inception (4.53). Allocating this much to SYO is slightly out of my risk tolerance comfort zone. I would be much happier if SYO had longer track record, but eh.

Component 2 - 1/3 of my money (33.3333%), $10,000
This component contains automated strategies. I am actually quite satisfied with the darwins in this component.

  • 2.1 LVS - $4000 (13.333%) - Very frequent, automated majors currency trading. Took a few hits with brexit news as can be read from their letters to investors, and probably might take more hits or recover with further brexit news - but they have solid track record. Performs well on markets with strong trends, and from what I observed, tries to enter markets early on in the trends.
  • 2.2 FEG/GAF ($1500/$1500) $3000 (10%) - Same strategies with different parameters on different currency pairs. Not that frequent trading, and while they perform well on trending markets, they enter after initial crazy volatility. Should nicely balance LVS for fakeouts. Also by @finbou. Both have extensive track records.
  • 2.3 ASY/SCQ ($2000/$1000) $3000 (10%) - ASY trades EUR/USD, and SCQ trades a good bunch of currencies. Both have sufficient EX and track record length, and historical returns. Both trade shortish durations.

Now, my component 2 trades currencies with automated strategies, and aren’t that correlated between themselves. Since automated strategies probably can’t adapt well to changes in market fundamentals, I tried not to assign more than a third of my capital to automated strategies (as I talked about in Diversification section above).

Component 3 - 1/3 of my money (33.3333%), $10,000
This component contains manual traders. Let me tell you, this was the hardest component to find darwins for. First half of component 3 contains darwins with LA > 5, and second half LA < 5.

  • 3.1 CLA - $3000 (10%) - Read the interview. Mostly trades using statistical and mathematical methods. Trades currencies and semi frequently. Sufficiently extensive track record. R/R for last 2 years exceeds 2.33. Good return, despite current DD.
  • 3.2 HFD - $1000 (3.33%) - Seems like a solid manual trader. High R/R score combined with high EX and 12 month+ track record.
  • 3.3 DAQ - $1000 (3.33%) - Trades stocks, while not sufficient EX score, sufficient track period and high R/R.
  • 3.4 ERQ - $3000 (10%) - Read the interview. Seems like a reliable Darwin. Low LA score historically, but trades last short period of time. Additionally, sufficiently proven track record of profitability.
  • 3.5 HCP - $1000 (3.33%) - Low LA score, and trades lasted short amounts in the last 3 month. Again high R/R with sufficient track record length
  • 3.6 MNW - $1000 (3.33%) - Low LA score again combined with < 10 hour trade length, and again sufficient R/R combined with EX and track length. I think this is manual trader, but I am not sure.

I wish nobody exhibited loss aversion, but could not find such darwins with sufficient track record length. Darwins I am keeping an eye on - SCS - if proves to be non-fake, DAQ + ERQ will be replaced with SCS ($4000). AZG, IFS are also worthy of keeping an eye on.

Exit conditions
Right now, I am waiting on response to my request for API acceess, after which I will develop my own tool (of course, to be shared with the community here) to determine my exit conditions - but until then, I will exit a darwin at 20% drawdown, and that is it. When I leave a darwin, I consider what component it occupied in the portfolio, and find a suitable replacement for that COMPONENT among darwins, and reinvest. Of course, if I find a new darwin that is a better component than what I already hold - example, manual trader that is better than DAQ - then I will pull out of my existing component and replace it with the new darwin instead. Though I doubt I will be finding better darwins than what I already hold in short periods of time. This section of my post is very incomplete, and I will elaborate on it later when I actually get API access and finish writing my code. So, stay tuned if you have read this far and are interested?

How Did I choose my Current Darwins?

  • For any darwin to be considered - Return 2Y > 20, RS > 5, Return/Drawdown ratio > 2
  • IF LA < 5, Trade duration 3M < 10 hours and OS > 7.5 and CS > 7.5 ----> or LA > 5

For any darwin to be considered, it should beat at least 95% of random strategies per year on average. How do I calculate this, you might ask? Let X be the number of month in the darwins historical track record (I just count it manually), and let Y be the Return/Risk since inception value. You calculate Z = Y * 3.464 / squareroot(X). If Z > 1.645, then yes, it does defeat 95% random strategies on average per year since inception. If you want to set this percentage to something other than 95%, you can lookup z value for your chosen percentile. 2.33 is 99% FYI.

Example, at the time of writing this post, SYO has roughly 23 month history, and 4.51 R/R value. Z = 4.51 * 3.464 / sqrt(23) = 3.25. Since 3.25 is definitely bigger than 1.645, SYO meets this criteria. In fact, if we lookup percentile of z value 3.25 - NORM.S.DIST(3.25, TRUE) * 100 in excel - we get 99.94, meaning SYO beats 99.94% of random strategies on average per year, which is beyond excellent.

So I just went through all darwins that met these criteria, and resolving to invest no less than $1000 per darwin, selected the rest manually, giving special consideration to EX score and track record length.

I have much more to write about, and will get to that in the future. If you wish to offer criticism, please do! I sometimes get terrible tunnel vision, and perspective other than my own is most appreciated. Any questions and other comments are also most welcome.

Also, whoever in darwinex came up with the idea for pitting darwins against random strategies, and evaluating their performance percentile - namely PF IA and R/R since inception value - allow me to express my most sincere appreciation for your genius! Such a simple, brilliant, useful, descriptive and elegant metric that easily lends itself to interpretation! Kudos to you, sir/madam/group of people!

Edit: ERQ position size changed to $2000, freed $1000 remain uninvested.

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Thanks a lot, @yhlasx, impressive post.

It’s impressive (and heartwarming!) to see how the level of this community is being raised.

Thank you!!

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Thank you @ignacio Also, could I trouble you and remind that I had emailed you requesting API access a few days ago? :slight_smile: I intend to create a few tools for myself and the community here to analyze darwins - firstly, namely, testing of statistical (in)dependence of future returns on past returns for darwins - so that we can finally answer with some degree of empirical backing whether it is wise to buy after waiting on drawdowns, or whether it is wise to increase investment (as most people do according to their posts) when darwins enter drawdown periods, and so on.

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You are absolutely right, sorry! I read your message on the go and now realised I never got back to you.

I will send you an email with the authentication methods to grant you access!

Best,
Ignacio

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Hi,

Thank you for this incredible post. I’m still new and learning about darwinex but I do share your opinion about diversification and using statistics to study the relationship between past and future performance.

What I have read about SYO is that is trades with two automated strategies( Apolo and Nemesis). In my opinion, they trade relatively quite often resulting in a high volatility. I also have them in my portfolio as I feel it’s a long term winner.

Moreover I included for diversification reason THA, FEG as currency traders and TOC as he trades discretionary on crude oil.

My goal is to receive 10% net ROI and as soon as a DARWIN hits this mark, I set the stop loss at 11,1% ( and on -5% of its return>11,1%

Kind regards

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TOC is automated. But sometime discretion may be used.

Be cautious about stop loss. Especialy with -10% and -5%. Because with a VAR10, it appends very often.

Stop is the right way to get out just at the wrong time (starting from the asumption that you bet on higt quality darwins).

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Thanks for the advice, I just mean that I’m happy with 10% profit on each Darwin
For example TOC is now at 20% and my stop loss at 15%, if TOC drops suddenly I take my profit and re-analyse this Darwin before investing in it again.
I know this is not ideal for a long term buy and hold portfolio but as I’m still learning, I check darwinex multple times per day :wink:

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I agree with @CondorcetInvestment about 10% SL being too small

  • With 10% VaR, and 10 darwins in portfolio, and 10% SL, the chances of at least one darwin hitting SL in a given month is larger than 40% (probably much larger, since monthly drawdowns << monthly return) - not at all viable for holding.

On the other hand, I am firmly of the opinion that as long as whatever you are doing is not completely irrational, you should stick to what you are comfortable with. Your (@matthiases) current approach might have more merit than what is obvious at the first glance - and with api access we will get to test those things in the near future.

As to TOC, I am not investing there, and I don’t plan to. I think TOC is too dependent on favorable market conditions to be profitable, and I don’t like holding such darwins. Maybe that is unwise, but for now my motto is better safe than sorry. I am already far too uncomfortable with the risks I took with MNW, HCP, DAQ, HFD, SCQ, SYO (33% total capital).

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Thanks for your valuable feedback @CondorcetInvestment and @yhlasx

Good and informative post! Thank you for sharing your portfolio creation method - I hope you continue to update it regularly and have good results in the future.

I understand that exit rules are yet to be refined (waiting for api access) so I would like to ask what is your opinion on Dscore, divergence and recent track record on entry rules. Dont you think they have a place in them? I mean I am sure you cannot possibly want to invest in THA (for example) when divergence is -2% etc right? Also, will you go about allocating your full capital on your portfolio or keep some in cash in order to add in case of a drawdown?

Its particularly interesting to me that starting with the same problem (diversification as a protection vs black swan events) you and @CavaliereVerde developed different approaches to “solving” it. He gives extra weight to traders that are participating in this forum/have registered companies and allocates the same percentage to each darwin and you on the other hand tries to find fundamentally different darwin groups in order to allocate different percentages of your portfolio.

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I am glad to say that I now have api access, and even though api does not yet support all that I wish it did, I will make do with what is available, and… will get back to everyone once I have something concrete to show :slight_smile:

Dscore

Darwinex tried really hard in creating this metric, and I am sure they have excellent quants. I think if at any one point one wishes to invest in anything with < 68 dscore, they better think long and hard about this and have a good reason. Other than that, I don’t really have a quantifiable opinion, though I am working on it.

Divergence

I don’t like anything with bad divergence, but if I don’t have better alternatives, I am afraid I will stick with good Darwins even if they have bad divergence… up to a certain point (maybe when expected yearly return falls below 15% I will leave a darwin, though I am not completely sure yet)

Recent track record
I will pay attention to recent track record only to ascertain whether a darwin is broken. Example: LVS -> The short of it, I don’t think LVS is broken. I think they had an outlier event that left them in the red, but I think situation will stabilise after us midterm elections and finalized brexit negotiations. What to do until then? I am not sure. Though I haven’t changed anything in my portfolio.

Also, will you go about allocating your full capital on your portfolio or keep some in cash in order to add in case of a drawdown?

I don’t like increasing my risk when a darwin is doing badly. Yes, I understand that starting from the premise that had I selected good darwins, it would make sense to increase investment during drawdowns. But what if a darwin breaks down completely? I am uncomfortable with such risk, so I avoid it. I have invested my capital in full, with my portfolio VaR not exceeding 4% of my total capital (edit: granted, with correlation fluctuations, and profits and losses, I thought it might fluctuate up to 5%, hence 4%)-> because of that, there is excess capital in cash, but that is a result of risk control constraints and not anything else.

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Aren’t you worried about the extremely low Ex? All of the other attributes are not really reliable with an Ex==2. It is too low and all the statistics for this darwin are not meaningful yet. Also, one year trading doesn’t seems a very long time.

The divergence in this darwin is so big, that although it is clearly a great darwin, it is mentally difficult for me to invest in it. It is true that the divergence has improved a bit, but still there are some trades with a latency > 1 sec.

Your post analysis has been really interesting, thanks for it! That kind of content is what we need here.

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Could you please explain how you calculate the 3.464 and 1.645 numbers? Why those values and from where did you take them?

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3.464 is sqrt(12) - 12 month, and 1.645 is 95th percentile of standard normal distribution. Darwinex confirmed that R/R value is normally distributed - thus the little formula I put in here readjusts the value to average R/R behavior over 1 year.

As to DAQ and ERQ, you are absolutely right. They are the first in line for removal the moment I find something better to replace them. Unfortunately after much looking I couldn’t. Perhaps DAQ was excessively unwise, with its too low EXP :frowning: If anyone has better alternatives - good darwins with manual traders behind them, preferably dabbling in noncurrency assets, I’m most interested in hearing those suggestions.

Rigth now I’m keeping an eye on SCS, though I’m most doubtful about it’s legitimacy.

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You could take into account UEI: Although Z doesn’t seems very impressive (it is 0.7), the trader said that since Christmas 2017 he only left in the Darwin the better performing strategies, improving the overall profitability. You just need to check the curve the last 10 months. If we calculate Z using only 10 months this year, it is 1.62, very close to your 1.645 limit.

I think that this may happen with some more darwins; one specific darwin may have good Z in some moments, and bad Z in others, and may be is an error to discard it. We should also study the darwin’s evolution.

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Woah, It seems that I did not take a good look at UEI afterall, I had assumed it to be an automated strategy, just by looking at the recent equity curve :open_mouth: I need to look at it a bit more, but If all checks out, and I suspect it will, I am going to be moving some portion from ERQ to UEI (maybe $2000, maybe $1000).

Could you please tell me how you look at R/R value for a custom period? When I select last 10 month from the chart, only the return value changes. I can look at R/R for last 1D/1W/1M/1Y/2Y only, not last 10 month.

I quite agree, I just did not want to needlessly complicate my original post :slight_smile:

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No way, DD is calculated only on standard timeframes :wink:

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I’m sorry for the misunderstanding, I wasn’t saying that it is a manual strategy. Actually watching the trading hours it trades at any time, so may be it is automated. @TevershamCapital could you please shed some light on this?

As @CavaliereVerde said, it is not possible, I just did an approximation. But if you take the last 12 months, Z is even better, 1.94 :wink:

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100% automated - there was some early discretion but now all coded until i review over Christmas to see if i would like to tweak anything

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@yhlasx

Maybe you should consider also:

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