CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 66 % of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

What is the best VAR for the underlying strategy?

This is a question for my experienced colleagues @KlondikeFX and @integracore2 .

NTI : var 4%
PLF : var 1%
ICX : var 10%

I always tried to keep var of my strategies very close to 10% but maybe using lower risk profiles could reduce the worsening effect of the risk manager.

4 Likes

Honestly, I have no idea :smiley:

I don’t take care of any Darwinex attributes during my trading for the time being. I am using an automated fixed stop loss for every trade depending on market volatility. Currently, the volatility is pretty low so my stop-loss is rather tight and the leverage higher. Resulting in a lower win%.

The reference account is risking a fixed 2.5% per trade (which is rather high). The lower var might be induced by less frequent trading opportunities and skipping GBP/USD altogether.

11 Likes

Thnx! :smiley:
The point is that the higher the var the more often you need to adjust your equity with small deposits or withdrawals to compensate for a lucky or unlucky run or for a different market volatility.
You have an autamation to manage that but I prefer to work with fixed lots/equity.
I would like to hear the opinion of @JJENSLOPFAM and @TradeSignalMachine

If you look to KVL and underlying strategy there is a sensitive worsening, not a disaster but my impression is that low var tends to be more stable.
We can adjust the leverage manually or automatically but we cannot guess future volatility of eurusd or future frequency of our strategy.

1 Like

I don’t think I would ever have time to continually adjust equity level with small deposits/withdrawals. For me the level of the VaR is not so important, providing I am comfortable with the risk and fairly confident that I will never bust an account. it is simply a case of scaling position size based on the equity level (amongst other things), so that the risk stays fairly constant. On my more established systems I have kept VaR to between 1% and 2%, but I am considering increasing that by scaling up my position sizing slightly. I would still feel comfortable with a value of 5% to 10%.

2 Likes

I am doing exactly the same but I was guessing if there is an optimal VAR to put the risk manager in the best working conditions.
I am quite good at navigating VAR and keep a Risk Stability of 9 but despite it darwin quality is still lower than underlying strategy.
the problem doesn’t worry traders still dreaming a 40% annual but probably it is s concern for people with true experience and realistic expectations.
The inefficiency to harvest is really small an these optimizations can make the difference in the long run.

I think what you want cannot work the way you try to optimize your trading:

First level

Every time a trader sends an order to the market , and depending on the market conditions at that moment in time, the algorithm calculates the size to be opened for the investors in order to meet the objective risk level that Darwinex guarantees its clients."

From

I know the basics, I think I have explained to noobs at least one hundred times. :sunglasses:

Here I am asking to traders with many years of trackrecord if there is something better that can be done.
Many traders are going to a VAR under 5%.
Maybe it is better to stabilize a VAR around 5% instead of 10%.
I have no problem to work with every VAR between 3 and 25%.
The risk manager evolved with years but it will be never be perfect.

Official darwins (DWC DWF DWZ) work with a very low VAR and i don’t believe in coincidences.
On my darwins the replication is very good but maybe it would be better with a Risk Stability higher than 9.5 and low VAR is easier to stabilize.

1 Like

Interested in this discussion… I used to believe that a 20% VAR on the underlying for the risk engine to step down to the 10% is best but I am now leaning towards <10% VAR on the underlying for the risk engine to stabilise by itself.

2 Likes

Thanx to @KlondikeFX and @TradeSignalMachine for your answer.

Now I am waiting an opinion from
@integracore2
@JJENSLOPFAM
@Pulse07
as colleague and loyal investor… :wink:

In terms of an optimal VaR, might be a question for Darwinex. I honestly don’t know. But again, I’m a believer that the trader should act sensibly and in line with their own beliefs and risk appetite, rather than being influenced by Darwinex metrics/attributes. Do what’s sensible and the Darwinex metrics will look after themselves. Just my view.

5 Likes

They would answer the same theory that I already know.
I am more interested in some tips and know-how from traders with a long native experience.

Looked around more and I can see that each divide has its own advantages and disadvantages. My preferred option of around 15-20% underlying VAR means around half the profits but also around half the losses on the Darwin.

Then <5% VAR means more than double the profits but also the losses.

At the end of day, it is really subjective. I’ll be surprised if there is any designated best option. Staying consistent is more important either way.

I do not think there is an ideal VaR value, the important thing is that it is stable and not too high.
Because if it is too high and that the size of the trades is close to the minimum, in case of drawdown, the equity could risk to fall without the size of the trades are lowered in consequence.
This would cause a very rapid increase in risk if the trader does not increase his equity.

However, it is not so simple to keep a stable VaR even with a constant and strict strategy.
I think the biggest problem is that VaR falls too much and quickly when the frequency of trades decreases.

In many cases, if there are fewer trades, it is because the market is less favorable, and it gives fewer opportunities (and often they are also less good opportunities).
The risk of Darwin is therefore multiplied at the moment the underlying strategy is in trouble.
Which in my opinion explains a lot of cases where darwin is noticeably worse than the underlying strategy.

In addition, it seems to me that the replication engine is especially effective for strategies that have a very bad risk management such as martingales, but it tends to restrain serious strategies.

But I have not studied all this enough to affirm anything.

Personally I prefer to manage my strategies without worrying about how they are reproduced by Darwin.
Because I think the goal is that Darwin best fits the strategy and not the opposite.

7 Likes

Exact because it has been desinged to protect investors from gamblers, not to improve the performance of serious traders.
A trader should trade to make pips ignoring the risk manager but IMO it is legit to explore if there is room for improvement in this department.
We cannot change the algos but we can do some slight optimization on our trading.
VAR depends on size and frequency, we can control size but not frequency that depends on opportunities offered by the market.
I do not think that the fact that the majortity of visible darwins is operating under 10% is a coincidence.

I think you have nailed it with your post.

It seems when the wise trader sees trouble ahead and trades more cautiously, the unwise associated Darwin does the opposite and trades more aggressively.

2 Likes

The same old polemic about risk normalization wasn’t the scope of this topic.
Risk normalization is useful to prevent some scammers to reduce risk and protect past return from a strategy that lost the edge.:smiling_imp:

I was expecting some suggestions for my trading.
If there is nothing new/constructive/useful thanx anyway…

Shoot me down in flames if you wish.
I think what everybody is saying is to concentrate on the underlying strategy.
Your Darwins track your strategies very closely, but, in my opinion the strategies are giving volatile and erratic returns. This will scare potential investors away.

2 Likes

I do something quite similar to what @KlondikeFX mentioned in fact - the objective is to always maintain a consistent risk profile, for both my own peace of mind and to be compliant with the Risk Manager.

PLF and LZL (it’s parent strategy) do the following:

  1. Take a fixed risk per trade proportional to available equity

  2. Set SL and TP based on volatility of the target instrument

  3. Set exit levels depending on a proprietary technique I do not wish to disclose - but essentially it is based on both volatility and time.

ICX does the following:

  1. Takes a fixed risk per position in lot steps per increment of available equity (sort of similar to what @CavaliereVerde mentioned)

  2. Fixed risk value above may be modified depending on the outcome of a proprietary technique I do not wish to disclose - but essentially it involves doing a historical assessment of fixed risk per trade assumed vs. strategy outcomes (both good and bad).

  3. The prop technique I mentioned above also calculates a probability of scale -> this is used to decide how to divide the available fixed risk value among trades, so as not to exceed the maximum fixed risk per position.

This is necessary for ICX as it is heavily dependent on underlying asset volatility, and without this constraint sudden spikes in either direction on the underlying instrument could easily exceed the maximum fixed risk per position.

The practice above essentially eliminates any need to deposit/withdraw funds from the underlying account, the strategy behaves exactly the same irrespective of the magnitude of available equity (respecting minimum and maximum lot sizes of course).

It is also the main reason why I don’t pay any attention to claims on this forum that equity levels determine trader seriousness :smirk: My objective is to attract AuM to strategies that may deserve it, with enough reference capital to demonstrate functionality, return, consistent risk profile and track record.

3 Likes