[HOWTOINVEST] Buying Darwins on a dip

[endo77]

Darwinia buys highs(allocates darwins when they are on high points or when bad darwins are having sharp monthly pullback(upwards) on their way down). Exactly the opposite of what I recommend in this thread.

I would like to discuss this buying Darwins on a dip in more detail as it is an interesting topic.

Let's start with the basics. Let's take the most simple example of a betting system. Coinflip: win $6 on heads but lose $5 on tails. If I flip heads 2x in a row am I more likely to get tails? What about vice versa? NO! It doesn't matter what's happened in the past, law of averages does not take on a debt. In an absolutely unchanging system (granted Darwins are not) where we know the exact system and edge (granted with a Darwin we don't) we should not wait till some loses occur. We should buy ASAP.

We can chart the winnings and losses of our coinflip game in to a chart, give it an arbitrary price to "buy in at" based on it's wins and loses (in exactly the way a Darwin is "priced") yet still we do not wait and buy on a dip, it is correct to simply buy ASAP once we realize we have an edge. With me so far?

OK OK Darwins are NOT simple betting systems and we do not know their edge, we can only barely estimate the edge. Yes Darwins, markets and human psychology can have cycles. Yes any trader is probably more likely to "fix" her problem during some losses. If you can identify these cycles or have reason to believe your edge has gone up or will go up in a Darwin DD then by all means wait for a DD but do not arbitrarily wait for a DD to "get a better price," it's non-sense. You are just essentially entering a contract, giving the trader your money to trade. If you buy in to a Darwin 10@$10 or 1@$100 and the system or Darwin has the same edge as it did before, you are going to have the exact same expectancy and risk to your capitol.

 

[CavaliereVerde]

But often ther is just nothing to fix.
Avoiding an ATH the investor avoid the risk to enter just before a bad cycle.
Entering during DD at least part of the bad cycle is already discounted.

Dont' get me worng, entering ASAP makes sense but entering below ATH reduces the probability of a max DD on the investment that would be more diffcult to endure for the investor.

 

[endo77]

But often ther is just nothing to fix.
Avoiding an ATH the investor avoid the risk to enter just before a bad cycle.
Entering during DD at least part of the bad cycle is already discounted.

How would you know which part or how much longer? You could also say entering during a winning cycle is good because you have skipped the down cycle and the winning cycle could last much longer. Entering on a DD, maybe the DD is not even 1/3rd over.

One must have a rough idea of the cycles in order to exploit them otherwise it's just random. Just entering on a DD because it's a DD cannot be correct.

 

[CavaliereVerde]

The entry will never be the best possible but avoiding to enter at ATH I know that it cannot be the worst possible.
And by the way darwins are not random walks, if they were the best entry is not ASAP but NEVER !

 

[endo77]

My sample game above is not entirely noise. There is an existing edge so I don't think it's classified as random walk. There is an edge and some randomness, same as a ("good") Darwin.

Ah this might be hard to explain but believe it or not, strictly worrying about "not entering at the worst possible point" is actually mathematically a waste of time. You are risking wasting potential gains by standing on the sidelines assuming there is an edge that is either static or unknown.

Again, wait for a DD if you've identified a probable cycle of some kind by all means.

 

[CavaliereVerde]

"not entering at the worst possible point" is actually mathematically a waste of time.

I agree, but investors tend to tolerate better a loss of profit than a loss of initial investiment, probably they would tolerate a 15% DD after 30% profit but not at the beginning.

 

[endo77]

probability of a max DD on the investment that would be more diffcult to endure for the investor.

This is more interesting argument!

If you're trying to pinpoint the moment your perceived edge goes down too far to hold on so that you can only lose a little, then by waiting for a DD you are already closer to that point. So have you simply waited for your lowest tolerable perceived edge to almost be in place before buying it?

 

[endo77]

better a loss of profit than a loss of initial investiment,

This may be true but a dollar profit has the exact same value as a dollar of initial investment so why would anyone treat it differently with risk or otherwise?

 

[CavaliereVerde]

You are right, same math but different psychology.

There is another important point, we are not assets we are traders.
Even if the result of our strategy is very random our mindset is not random.
So as investor waiting a DD is not only a good entry but it allows me to verify the behaviour of the trader during drawdown

 

[Muiris]

You are right, same math but different psychology.

There is another important point, we are not assets we are traders.
Even if the result of our strategy is very random our mindset is not random.
So as investor waiting a DD is not only a good entry but it allows me to verify the behaviour of the trader during drawdown

There are 3000 active darwins. there is no need for speculation here. Just study them and make the conclusion. no need for more coin flip talk

no one says just enter on any drawdown on any darwin

this talk about buying on dip , entered the forums because many would start calling the end for darwins that had good prev record but now they entered a decent drawdown, they were somehow done. I remember THA getting this treatment. "his success was in the past ."

This talk about entering on a drawdown, came to be, because contributors to the forum got sick of seeing investors flood out of darwins when they entered a little drawdown period and wanted to communicate that if you like the darwin, if it had good previous equity curve you shouldn't write it off just because it entered drawdown because drawdown in normal.

 

[Gargamel]

you are going to have the exact same expectancy and risk to your capitol

You are hopeless.After all that I have written...

Ah this might be hard to explain but believe it or not, strictly worrying about "not entering at the worst possible point" is actually mathematically a waste of time. You are risking wasting potential gains by standing on the sidelines

For more intellectual explanation and mathematics:

La trampa de la expectativa

La trampa de la expectativa

sktradingdarwin.blogspot.com

Estudio en profundidad del Darwin UYZ

Blog sobre trading serio y comprometido. Una alternativa de inversión.

sktradingdarwin.blogspot.com

This may be true but a dollar profit has the exact same value as a dollar of initial investment so why would anyone treat it differently with risk or otherwise?

If you miss a dollar of profit,you are not poorer.You lost nothing.
When you lose your hard earned capital,you are poor.

 

[ASGTrade]

Both sides of this argument have some merits to them tbh.. Another of those subjective debates.

 

[FXforfun]

If the argument to enter is based on gambling I would choose enter when strategy is going fantastic. Everyone knows that in a roulette you should bet red if there's a lonk streak of reds and not the other way because of 50% statistics

 

[CavaliereVerde]

Let's consider the resul of one month as random as a coinflip.
The problem of investors entering after a nice row of green months is that they expect the lucky streak to last forever.
They would probably sell at the first red month.
They enter anfter a +30% "fantastic" year and they expect every year to be like that.
The point is not the predictability of a darwin but expetcations and patience of different kinds of investors.

 

[FXforfun]

Fully agreed @CavaliereVerde . But if the discussion is enter on a dip or enter on a top I prefer the second option without second thoughts.
Also, on a dip you never know if the trader/strategy are burned out or is normal. It's riskier.
And also 2, beting on a dip is the basic principle of martingale. Again I would prefer antimartingaling

 

[Muiris]

Let's consider the resul of one month as random as a coinflip.

I'l be happy when people stop talking about coinflips here or roulette or anything else besides trading.

there are 3000 active darwins. go study them in relation to buying highs or dips and make an analysis

 

[CavaliereVerde]

Ok but the comparison is useful to understand the differences.
The ups and downs of darwins are pretty random but the difference is what is behind.
Traders have emotions while coins do not have, the state of mind of a trader after 3 green months is different for the state of mind after 3 red months.
Let's consider also the rules of the ecosystem.
ZXW was much more visible whe it was on highs than now, because of return/Dscore/AUM.
This is the reason why often buy ASAP = buy above average.

 

[Pure Pip Producer]

Degree of importance of entering a financial market : Almost none

Degree of importance of exiting a financial market : Highly Absolute

A coin flips system can be only used to train our brain to exit the market by fighting against a randomness enter. Results of this exercise appears pretty quickly on our equity curve.

The Champions' League Level can be achieved after 2 years training/suffering with real money.

 

[Gargamel]

Moderator,please transfer last post of PPP where it belongs.This is a thread about entering darwins during DD.Also it would be useful to merge his mega thread in sub-forum about Darwinex with the thread about darwin PDC.After that all promotional activity can be contained in that single thread .

 

[Gargamel]

The only darwins where I would be satisfied with shallow DDs as entry points would be scalpers.But real scalpers with alpha(edge),not some 'Leverage artists' masking their risk with various ways to use leverage until some day ugly truth comes out or scalpers trading without SL .
You need long enough track-record to be sure scalper is disciplined,by that time he might already have too much AuM and Divergence problems.Catch 22