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Passive Investment Portfolio by Qaytarlah

Congratulations to Darwinex and to this community, both are pretty cool IMO.

//////INTRODUCTION//////

In this thread, I’ll be sharing my attempts at making money with Darwinex :blush:

The goal is to invest passively (buy&hold) in a reduced amount of solid and robust top Darwins.

During the first posts, I’d also like to contribute by

  • Sharing my notes and learnings of all my Darwinex exploration so far, including the series of podcasts Javier Colón, co-founder of Darwinex, did on summer 2018 about Passive Investment (I’ve been told by Darwinex, such series include all the content of the previously offered passive investment online paid course). 13 Episodes of about 40 min each. In Spanish. Here.
  • Sharing my Darwins’ analysis and thought process when building my portfolio.

I’ll try do my best to stick to the guidance/tips I’ve picked up from all the public educational content of Darwinex. At least during the first year. At the moment I have no reason to ignore the tips issued to new comers like me. They are very exhaustive, so I feel good about it.

I’ll try to make it as simple as possible and keep experimentation at very low levels. I’ve successfully invested, long term, in stocks for few years (not many, just 3: cy17 12.01%, cy18: 3.88%, cy19: 10.23%) so I’ll sort of try the same approach here: Study the fundamentals, pick some assets and stick with them for years (ofc, monitor and adjust when needed).

//////THE PLAN//////

  • Publish learnings and analysis in this conversation [I’ll do so during the next days]
  • Build a portfolio and put in Demo for few weeks. Monitor, make sure I understand everything.
  • Invest 10k eur and (unless something “fundamental” happens) don’t do any modifications for 1 year.
  • Go from there

//////ABOUT ME//////

I started investing my engineer savings in stocks end of 2016. Through value/buy&hold kinda investing.

About a year and half ago I started pursuing the quest of becoming a trader. I manually trade FDAX/FDXM. At the moment I’ve invested some hundreds of hours and lost some money (not much, I simulated a lot and kept the leverage low since I am still learning). I may open up another threat sharing more details about my trading, I am not anywhere close to open a Darwin but it shouldn’t hurt to document and share the process of how I am becoming a trading… Will see.

I am quite passionate about investing and more recently very much interested in trading, so I feel like Darwinex is a good place for me to be. I must admit, I am having fun exploring Darwinex and I am excited to be part of the community and kickoff my live account.

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//////MY NOTES ON (DARWINS) PASSIVE INVESTMENT//////

Disclaimer. While vast majority of the content here comes indirectly from Darwinex’s educational material (podcasts, articles, etc.). What I am writing here is the interpretation of the original content by someone who just arrived at Darwinex (me), so of course, it’s likely that I got some things wrong.

I have made an effort to be as true as possible to the original content, so I’ll be posting my own thoughts between these [].

THE BASICS

  • Don’t invest in Darwins below 60-65.
    It’s a statistical environment: Dscore is designed to work for most Darwins, but not every, so there are going to be cases where Dscore doesn’t work (e.g. solid trading strategies with not so good Dscore and viceversa)

  • Invest only in Darwins with a 2, ideally 3 year track record or bigger.

JAVIER’S 5 RECCOMENDATIONS TO NEW COMERS

  1. Avoid buying at historical or relative (3months) maximums. It’s been quantiatively demonstrated that is not the best way of investing. If a Darwins has made 15% in two months, the likelyhood of it having a flat or down period is high. This is no true for all Darwins. Possibly this is more true for auomated strategies than for manual traders. [When I first saw this community wanting to invest in Darwins after DD, I didn’t get it… It reminded me of the following question: Would you bet for tails, after 3 coinflips that result in heads? The truth is that in the 4th throw tails and heads have exactly the same odds as any other time: 50%. I understood Darwins are different in this matter due to the existence of market cycles in the market. So, if a strategy turned out very profitable in a given market-cycle, it is not so likely that the same strategy will turn equally profitable in the next (different) market cycle. I understood these market-cycles, in Forex, last few to some months and they tend to periodically show up again sometime after they end]
    [As I see it, while the outcome of a coinlip is determined by the laws of physics and result in a random system, the series of market-cycles are determined by a complex combination of human interactions, and there’s no guarantee for it being random, it is very likely that there are patterns in it. That make sense to me. I know it may seem like i am overthinking this, but to me it’s fundamental: Darwins are not like stocks which move according to offer and demand, I need to understand the fundamentals of why it’s a good idea to invest in Darwins in DD… I guess it is convenient that Darwins work like stocks in this matter, but it’s just coincidence, they do so for very different reasons]

  2. Do not set Stop Losses at an arbitrary % of loss. E.g. “If a Darwin loses 10%/15%/20%/25% I’ll sell it.” In passive investment, there’s no basis for doing that, DDs are normal. The only reasons to sell a Darwin (in this context) is when one detects the behavior has changed: Darwin no longer trades like it did when you took the decision of buying [I am not very clear on how would I detect a fundamental behavior change, so I’ll have to learn that].

  3. Watch out when investing in Darwins without DDs, it could be coming soon. Especially in those with an “Ex<10”. [I guess this is a bit redundant with not investing on Darwins with less than 2 years track record]

  4. Never invest in recently migrated Darwins and always watch out and wait to confirm behavior is as it was before migration. On top, if the Darwin trades in late market hours, be extremely careful (they could have been benefiting from special conditions in their previous broker). [Reading form the forum, I’ve noticed some experienced members of this community not trusting at all migrated track records. I’ll keep it in mind.]

  5. Beware of over-diversifying. Diversification is associated with ignorance, the less one knows, the more has to diversify and viceversa. The more Darwins you add in the portfolio, the more you dilute the good ones and the more reduce your risk, hence your potential returns…

JAVIER’S RECOMMENDED APPROACH TO RISKING MONEY IN DARWINEX

  • Identify your risk tolerance. How much money can you lose in a period of time and be okay with it? E.g. 1000 eur a month.

  • Risk evolves with the square of time. VaR of 1000 euros a month is equivalent of 1000*sqrt(12)= 3464 euros a year.

  • Similarly, risk decreases with the square of the number of uncorrelated Darwins. Each Darwins has a target of (max) monthly VaR 10%. So the risk of a portfolio of 4 Darwins is 10%/sqrt(4)=5%.

  • Risk and Return are symmetrical. Greater risk tend to greater returns. He mentions a good Darwin’s portfolio should yield about 3 or 4 times the amount risked. *[Which I don’t fully understand… That would mean a portfolio of 4 uncorrelated Darwins would yield 5%*sqrt(12)3.5= 60% a year… which sounds like too much. I’ll dig deeper into this, I’ll like to understand better the relationship, and how to quantify it, between risk and return.]

  • Ideally, we should always operate at our maximum risk, set by our tolerance, not below: It’d be inefficient. [This I found profound, and applicable at life in general hahaha].

  • How many Darwins do I add in my porfoltio? Answer: As many as you find (that meet your criteria) as long as:
    (1) They are uncorrelated
    (2) They allow you to risk as much money as you wanted to, and not less. E.g. let’s say someone tolerates to risk 1000eur a month and finds 100 of incredibly good and solid uncorrelated Darwins, if all of them are added to the portfolio, the monthly VaR of the portfolio will be 10%*sqrt(100)=1%. Hence, to risk 1000eur a month, he or she should invest 100k eur (1% of 100k is the 1000 eur per month targeted to be risked)… But turns out he or she doesn’t have that much money!!! In other words, that person would have over-diversified: That person would have taken less risk than the one he or she can deal with, which is inefficient.

OTHER STUFF FROM THE SAME PODCAST SERIES

  • As a reference. In the context of a classic global investment portfolio (stocks, funds, etc.). One could invest about 20% of one’s risk tolerance in Darwinex.

  • His definition of passive investor: Someone who can’t dedicate more time than once a month to re-balance the portfolio. [But he never explained what he meant by re-balancing the portfolio or how to monitor it. So sad… Sounds somewhat important.]

  • He says the biggest opportunity in Darwinex is the active management of Darwins. Cause they are a kind of investable asset a lot easier to predict than others. [Oh well, I gotta start somewhere: passive investment].

  • A passive portfolio of Darwins must be tried out for at least a year, to see if it works. [I understood the main point behind this if for you to see that the decorrelation of the Darwins in your portfolio is real throughout the different marketcycles… A potential issue is when you think you have diversified in choosing your Darwins but actually many darwins of the portfolio behave similarly, for example, they all have a similar exposition to volatility].

  • All Darwins should have the same weight in a portfolio. If there’s a Darwin you’d underweight, take it out.

JAVIER’S THOUGHTS ON HOW TO DIVERSIFY

[I found this very educational, but quite complicated relative to the previous points. I would love to hear from anyone in the community, if they find this attempt at categorizing Darwins useful at all and thoughts on this specific approach. Also if someone did the Passive Investment course, would be awesome to crosscheck our understanding in this matter].

By type: He seems to have identified the top 3 different and clear types of trading strategies that have proven to be successful in Darwinex so far (up to summer 2018).

  • Type 1. Volatility Darwin. They depend a lot on (Forex’s?) volatility to win. E.g. DLF, PGH, VQB [important to notice, that all Darwin examples given in this section were given by him, not by me]
    How to identify:
    -Very high “La”
    -“Ca” above 4
    -Positive correlation between such Darwin and DWC. So if Darwin wins when DWC wins and vice versa, such Darwin could be a Type 1 Darwin. He says the correlation between DWC and Forex’s volatility is very very high, they move very similarly. [he said so in summer 2018, not sure if he would think differently now].
    More comments
    -They look for strong trend movements.
    -They tend to not win/loose much most of the time and then win a lot when volatility is high.
    -Many good Darwins in Darwinex are like this, is important to identify them to not over-invest in them in a portfolio.

  • Type 2. Snipers. Few trades a month. E.g. NTI, ERQ, STV
    How to identify:
    -Very low “Ca” (between 0 and 2)
    -Very good Cs and Os – [As I interpret the audio, this seems to be connected with these traders operating against the trend (in Spanish: contra tendenciales). Not sure]
    -Few trades per month
    -They tend to have small DD
    -They start trading a lot and as time passes the trade less and less [I wonder why is that… It would make sense for me if they trade more or less depending on the current market-cycle, but if Javier is suggesting that these Darwins will trade less and less indefinitely, I don’t understand why that would be true.]
    More comments:
    -They look for very short term inefficiencies
    -Type 2 Darwins tend to be uncorrelated between them

  • Type 3. Semi-Snipers e.g.UYZ, GLX
    How to identify:
    -Low “Ca” (between 2 and 4)
    -Not bad “Cs” and “Os”
    -Not bad “La”
    -They trade more than snipers, but still relatively little.
    More comments:
    -They are not so picky when it comes to opening positions
    -Their positions have certain excursion (in Spanish he said “recorrido”)
    -But they are not looking for explosive movements

By asset. Most Darwins trade on Forex but some also trade indexes and raw materials. It’s good to have good darwins like that in the portfolio. E.g. OOA, SYO.

FINALLY, FEW CONSIDERATIONS OF MINE

  • I will invest only in Darwins with track record bigger than 3 years, 2 is not enough. Also, I may be more stringent with this and other criteria if some of those 3 years are not native (because I don’t know, yet, how to spot a potential change of behaviour prior vs after migration).
  • At least during the first year, I’ll not invest in Darwins which have caused some controversy within the community (eg. ZVQ).
  • Using an analogy with (stocks) Value Investing, to me, the fundamentals of a Darwin are the Humans behind it. So I am going to look for and value qualitative signs of professionalism/seriousness/honesty/right-attitude in the human(s) behind a Darwin.
  • With the intention to try achieve a truly diversified portfolio, I’ll include the following aspects to my analisis. Hopefuly is useful, I can’t tell before I do it and look at it.
    -How did the Darwin perform in a period when the Forex volatility was low? First half of 2018.
    -I will analyze when did the biggest DD of each Darwin happen and avoid having two Darwins that have all their big DDs and high return periods at the same time. I would conclude, they both suffer/benefit from the same market-cycles and hence they are correlated. Theoretically, this could happen even if they trade completely different strategies.

This was an attempt to sumarize the key points of what I learn in my investigation and what I’ll be basing my decisions on. I hope is useful for others, with this intention, I’ll be editing it as i refine my understanding or I receive feedback.

In the next posts I’ll share my Darwins’s analysis. After that, I’ll reflect on different combinations of the analyzed Darwins to ultimately end up chosing my portfolio for the first year.

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Thanks for your post, it was very interestin :slight_smile:

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3 posts were merged into an existing topic: ERQ – OakLadder

Alright, I am (preliminarily) done with the decision making.

Unfortunately my analysis process has been too unstructured for me to properly document it as I initially planned. Also, too long and I am tired of it hahahah, I don’t want to write about it - at least now. What I can say about it is that is fairly qualitative and intuitive provided I do not have technical knowledge on algo trading nor Forex. I think/hope it’ll be okay… If only experienced Forex algo traders can make money investing in Darwins, that’s not good news for the Darwinex concept, I am really expecting/hoping Investing in Darwins is A LOT easier than to manage them.

In my recently forged opinion (ofc, with doubts), this is how far Darwinex has got in terms of having attracted investing opportunity: NTI, ERQ, LVS, SYO, HFD, THA, UYZ, ZXW, FEG, WFJ, STV, CIS, ULI, GTD, VRT, YZZ, MJP, PLF, NSC, JMC

  • Surely I am missing some and some of these shouldn’t be in the list. But after all my research I am fairly confident that’s a decent aproximation.

Of which, I have chosen a “Core Portfolio” consisting of: SYO, UYZ, FEG, WFJ, MJP, PLF and ZXW&LVS (LVS and ZXW will share a position of 1/7 of the portfolio at a 50-50 ratio due to their correlation).

Additionaly, there are 4 Darwins very close to making it to the Core Portfolio but they don’t for a reason or another, so I’ve defined an “Expanded Portfolio” which equals “Core Portfolio” + THA(upon refining my understanding of divergence tracking tools being questioned in this other topic) + GTDorVRT + NSC + ULI.

Because I am not sure which one to pick and how to leverage them I thought I would do this (or something similar):

Invest 50% of the capital in the Core Portfolio. Unleveraged
Invest 25% of the capital in the Expanded Portfolio. Unleveraged
Invest 25% of the capital in the Expanded Porfolio. Leveraged at x2

This is not definitive but it’s a solid start towards a definitive decision. I’ve just added the Expanded portfolio in Demo, I’ll sleep :sleeping: on it for few days and go from there. The goal is to kick off the real portfolio in the next 3 weeks the latest.

Also I’ll reflect on the advice of the managers of MJP in their website: “When investing in Darwins, use temporal diversification to absorve volatility”. In other words, don’t invest all the capital all at once but space it in time through smaller investments for a given period. This is something I surely do when investing in stocks long term and for some reason didn’t think of it here :thinking: :thinking: :thinking:.

Needless to say, all thoughts, questions and feedback is very much appreciated and welcome. Specially opinions that diverge from mine.

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Good luck. Looking forward to see your results.

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Just kicked off the two following real portfolios.

Portfolio 1 (not leveraged. 75% of the capital). 7 Positions: SYO, UYZ, PLF, FEG, MJP, WFJ, ZXW&LVS

Portfolio 2 (leveraged x2. 25% of the capital). 10 Positions: [Portfolio 1] + ULI, NSC, GTD&VRT (sharing a postion of 1/10 at 50%-50%, like ZXW and LVS)

  • I am happy with my Darwins selection.
  1. All of Darwins’ Managers are either very responsive/active in the Darwinex Community and/or show significant signs of profesionalism through their reports, websites, communications, etc. Also, I got the impression most/all of these darwins are acknowledged and trusted by this community. Exception being NSC.

  2. All of them have at least 3 years of trackrecord. No exceptions.

  3. Non of them seem to have high divergence. At the moment of purchase, only 3 out of 12 showed negative divergence (monthly estimation) in their mainpage.

  4. Except for LVS and MJP all Dscores are above 60 at the moment of purchase.

  • Ofc I am likely to be biased, (choice-supportive & survivorship) but the truth is that the resulting equity curve looks pretty sexy (and steady) to me. Core portfolio 3year backtest from 9Mar17 to 9Mar20:

  • I am happy with the 75-25 leveraged-notleveraged split. This way, the total leverage is at 1.25 which is a nice compromise for the first year and I get exposure to leveraged wins and losses and my reactions to them.

  • The average year performance of both portfolios, given all data available in Darwinex, is around 20%. 23% for the core portfolio and 19.28% for the 12 Darwins of the extended one. But accounting for suvivorship bias and out of caution, I’ll be very happy if over the years I am able to obtain around 10% of profit without too much volatility. Which leveraged would be around 20%. And all of it with a complete decorrelation of whatever combination of viurses, tradewars, interest rates, etc. are going on in the world… Will see where my expectations end up.

Bonus. A summary table of the 12 Darwins involved.

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This is a professional job. Period. :+1:

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Thanks mate, truth be told I wound’t mind getting paid hahaha.

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Thanks for sharing such information.

This seems to be illogical to me. Is there a link or something to this demonstration in English? Is there some thread about this “buying a darwin on a dip” somewhere?

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Beautiful work, I like a lot the effort you put into it.

Since you have been using a lot of your diligence and your desire to learn, can I advise you to read (if you have not already done) these TABs present in the EDUCATION?

In particular way to understand deeper the “detection of behavior change” you have to check how Darwinex rapresents in graphical way a strategy with it’s metrics and their evolution in “t” time:

To fully understand some metrics, it is much easier if you have a background as a connoisseur of strategies, this does not mean that with the right amount of study you cannot understand a lot about the processes of some strategies, but ofc this only comes with a lot of time and effort. Understanding the changes of a strategy is very important, obviously changes especially if motivated do not only lead to a deterioration of a strategy. I wish you the best for your journey.

VolcanoFX :volcano:

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It sounded “interesting” to me too, I didn’t take it very seriously. For passive long term investmenet doesn’t sound crucial to me. Plus, volatility seems to be arriving now and I want to be in, that’s why I sort of ignored that point and just bought all Darwins at once. Also, I don’t know if that statement considers the loss of opportunity of having money still.

Can you share more details on why it sounds illogical? What do you think of my reflection?

To your question. I don’t know of more places were this has been published by Darwinex. My source is this (spanish) episode, the segment starts at minute 05:30. Javier says that new comers have a tendency to invest in Darwins when they’re having a very good performance and there is where he says they have quantitatively found out that isn’t the best way to do it.

Maybe some older community members can point us somewhere else in the forum where this has been discussed before. I’ve seen it’s a prevalent idea but I don’t know if the basis for it have been discussed in depth… Even @PrimeZor manager of ZXW is suggesting this approach

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Thanks a lot for your inputs :)! I’ll definetely look at those resources carefully. I can sense how there’s a lot of work behind, but it’d give my decission making a more robust basis, specially in those difficult times (surely will come) when I’ll have doubts whether to remove/keep a Darwin because of potential fundamental changes in its underlying strategy.

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I have to agree with Bendex on this.
Buying on drawdowns gives the impression of being smart because you get a better price, but you don’t consider all the potential profit that you are missing while you wait for a drawdown.
If someone has an edge, you should enter as soon as possible, without waiting for a drawdown.

If I pay you $15 when we flip the coin and we get tails, but you pay me $10 when the result is heads, would you wait for 3-4 heads in a row before playing or you’d rather play as soon as possible?

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Agreed but if you enter 5 darwins on highs you have to be prepared for several months underwater.
If you invest 10-20 you can avoid to care about the entries, good and bad entries will compensate.

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If Darwins are random walks it is better not to invest at all! :smiley:

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As a continuation of an interaction with @bendex in his portfolio topic

Not sure how interesting is it going to be but I’ll share my thought process around correlation. As a case study will use ZXW and LVS.

Maybe I’ve been using it wrong, but for some reason I didn’t like the correlation Darwinex calculation. As a long term investor, it seemed very short sighted to me, when I looked at the correlation between LVS and ZXW some days/weeks ago, the value was low (didn’t take a screenshot, sorry). When I look at it today, it shows -0.55. So it seems too volatile.

I could be totally wrong here but I have a sense it doesn’t capture something I am really interested in, which is if two Darwins suffer/benefit from the same market cycle. So I did this.


I tried to visually capture the best and worst (multi-weeks) periods of each Darwin, with the intention to see if they suffer/benefit from the same market cycles. I am not trying to capture a 2 days DD here. This method has obviously has a lot of flaws but it helped me spot a possible correlation between LVS and ZXW, and then I just looked at them closer…


It’s not 1to1, but it made me (maybe wrongly?) conclude they are too much correlated to invest in both:

Also, their behavioural stats are similar. Both trade for about a day or more, similar stops ratio, similar frequency trade, similar assets.

So my conclusion was that LVS and ZXW are positively correlated, not a trade to trade level, but at trend level. And that’s why they share a position in my portfolio.

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We are discussing on that statement. As I interpret their position, Bendex and Federico argue your statement is false. So I ask you…

What, do you think, are the fundamental reasons for which a Darwin that did very well on a given week/month is more likely to start losing than to keep winning?

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Yes, there are darwins that behave well on sideways market, other that behaves well on trending market.
Some do well on high volatility some do well on low volatility.

The point is the we don’t know what will be the market in the future but on average there are cycles, so better not to invest after a good cycle for the specific trader.

It is almost impossible to pick a bottom but it is not so difficult to avoid an all time high… :wink:

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100% agree. That’s why I find extremely interesting that one of the cofounders of Darwinex, @javicolonbo states in public that they have quantitatively demonstrated that is not a good idea to buy Darwins on peaks.

What do you think of my thoughts on why I think the “coinflipping case” is not valid here?

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