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Sniper trading Darwins

I am going to quote (and translate) Javier Colon:

“They tend to be uncorrelated between other Darwins of the same type (snipers), because they look for very short term market inefficiencies”
“Another type of Darwins are what I call Sniper, for example NTI, ERQ, STV”
“Something curious about them is that they start doing a lot of trades but little by little they seem to exhaust and they trade less and less. But keeping an positive edge/performance.”
Spanish original transcription: “Llama la atención normalmente en estos Darwins, que suelen empezar haciendo muchas operaciones y poco a poco se les van agotando y cada vez van operando menos y menos. Pero mantiendo un sesgo positivo”

If interpret correctly, Javier is suggesting these types of strategies, due to some fundamental reason, will tend to trade less and less indefinitely. That is difficult to grasp for me, I don’t understand why that would be true. But if you look at the facts, it’s kinda happening, the 3 quoted Darwins are trading very very little and almost in all casses trading frequency has been decreasing forever.

QUESTIONS to the community and specially to @javicolonbo if he’s available since I am very specifically quoting something he said. Ofc, It’d also be awesome to hear from @OakLadder, @KlondikeFX @finbou @TitanEUR

  • Why would a type of trading strategy (read: Darwin) trade less and less indefinitely?

  • Wouldn’t the trade frequency depend on the market cycle?

  • Is there a fundamental reason for which these types of strategies have a limited life span? (some argumet of the sort: the short term inefficiencies of the market that these traders are benefiting from are doomed to disappear after some years because of market adaption[?])

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Bonus for further context on how these Darwins do seem to be somehow connected: If we add JMC to the sample, it’s interesting how all of them except ERQ do seem to be correlated at a macro level: The three of them having a very clean and steady curve until they peak around Sep2018 and since then have losing. Not sure if this is too much of a qualitative analysis but gets my attention.



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Hi,

I am not aware of this quote by Juan and as I don’t speak Spanish I am not sure about the context and the actual meaning. Sorry.

However, I hopefully can add something to the “sniper” issue. At least from the perspective of my own Darwin.
So my main strategy is to follow bigger trends and trade the subtrend retracements. This has been working live since 2012 and in backtests since 2001.
Unfortunately, I have to admit that for the last months it’s not looking good and I have scheduled a careful reevaluation the whole strategy sometime during the 3rd quarter 2020. Additionally, the trade frequency is at an all-time low due to market conditions. This lengthens drawdowns as with fewer trades recovery would take very long.

Macro conditions for my strategy aren’t very good recently as it neither likes super low nor super high volatility. We have been seeing very low volatility overall for the last months (all-time low actually).

What I have been watching though - and I haven’t actually statistically validated this yet - is, that nowadays volatility seems rather short-lived through spikes. It might either be a wrong perception by me or it’s a consequence of increasing market efficiency which could indeed be a problem for a couple of trading approaches, myself included.

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After reading your previous post, I was just checking NTI. I realized your win/loss pip ratio have worsen in the last year.
Overall pip win/loss ratio: 6 pips in wins 14 pips in loses.
Last 12 months ratio: 6 pips in wins 22 pips in loses.
May you explain it if is part of the strategy, or what has changed?
Thank you in advance.

Could be capacity related. A trader may decide to cut out some of the trades that are more prone to divergence and slippage. And may do so more and more as investors come in or until the divergence goes back down or w/e. The short term scalping especially.

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My strategy is using a volatility based stop loss. With the low volatility environment the pip based stop loss is tighter than usual which is resulting in more full stop losses hit recently.
If the trade has more room to breathe the expert gets the chance to exit wrong trades at a better price than hitting full stop-loss. Resulting in a better pip win/loss ratio.

The upside to using a tighter stop loss is that you can use more leverage and a winner is yielding higher returns.

All this is happening automatically though without manual intervention.

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I made this question recently (in this community, but I don’t remember what thread), about if an automatic strategy is able to deal with market changes as fast and efficiently as an experienced manual trader.

I have the feeling (from my ignorance on automatic trading) that both kind of trading have pros and cons, is not the biggest “con” of an automatic strategy these nowadays often changes in the markets?

I know you are a very experienced trader, probably you started as a manual trader…I’d like to know your opinion about it.

Thank you.

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Actually, I never traded manually but from analyzing and watching the markets during the development of my experts I might actually be a solid manual trader - there is no empirical evidence though :wink:

I guess there probably is no universal truth when it comes to comparing manual and algorithmic trading. There are a couple of rather simple problems that still can’t be solved by computers and there are other problems where computers excel human beings.

I am pretty certain the strategy of NTI couldn’t be traded manually because I’d bet nobody would be able to observe the screen 24hours a day just to catch that one opportunity that might not come for days. You are right that human beings are very fast in adapting and in realizing regime changes. However, this also comes at the risk of over adjusting to changes that aren’t actually there (cognitive biases).

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Opps…my bad, I had assumed an automatic trader had to be a manual trader first, so he can set all the parameters and rules from that perspective but without personal alterations.

Yeah, it depends on the strategy I guess. I only watch the markets for a while, if I don’t find any opportunity during that time, I close the business until next day. I used to stay hours and hours in front of the computer, and it created anxiety and sometimes trading not optimal signs. I don’t do it anymore.
But because my average time per trade is about a couple of hours, and I usually have only one trade at the time (ocasionaly two with less risk each), I can afford to be in front of the computer while the position/s are opened.

I agree.

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Very interesting, thanks for sharing.

Volatility had a very vertical decrease from mid 2013 to mid 2014 down to the same all time low we are now in.

  • Was NTI back then comparable to todays NTI so that the next question is valid?

  • During such period (H1 2013+H2 2014), did NTI’s trading frequency behave like is doing it lately? In 2019 trading frequency is 0.15 per day, and in 2018 is 0.79. Looking at the volatility chart you shared, volatility in 2018 was higher than in 2014. Can you share the trading frequency for 2014 or what would be super cool, a trading frequency over time chart?
    PS - Feel free to stop entertaining my nerdiness any time :wink:

That is very interesting, given pretty much all Darwin Managers mention FX volatility. I am thinking it’d make sene for this community to develop some common ground around it and monitor it closely. Let us know if you engage into any effort towards validating that observation.

Exciting, Good luck! Keep us posted!

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Well, volatility is only one part of the equation - at least for my strategy. My strategy also needs some kind of “trendiness” of the markets. Since Q1 2019, we neither have a clear trend nor healthy volatility in EUR/USD.

Just taking a very simplified look at the ATR to define volatility, we can see that since the beginning of this strategy, volatility only once was quite as low as recently. However, we had a clearly defined trend during that time.

This is why between 06/2014 and 10/2014 the performance has been good despite trade frequency dropped to ~0.27
If we are looking at the overall trades/day ratio since 2012 on EUR/USD it’s ~ 0.44.

nti_2014

Since 2019 the EUR/USD neither has the required volatility nor a defined trend which is really bad for my strategy. Trade frequency dropped to ~0.1 with terrible performance.

nti_2019

This low volatility, low trend environment has been great for “outside the box” thinkers and grid/martingale trading though (pun intended) :stuck_out_tongue:

Despite hitting all-time drawdown limits I haven’t given up on the strategy just yet and will wait until Q3 2020 to reevaluate. If the indication hardens until then that the strategy has lost its edge I am not too stubborn to discontinue trading it.

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Eaxct!
These “tired trends” are toxic for many technical strategies, not only snipers or scalpers.