[HOWTOINVEST] Dead-pilot stop level

[morehastelessspeed]

It's ok to have draw-downs in Darwins in a portfolio, but there comes a point when enough is enough.

For example, lets imagine an automated strategy that breaks its profit trend and starts going down. This drawdown may be within the parameters of the strategy, or it might be that the manager has made a change of life and the system is left abandoned to deteriorate.

Sometimes it is possible to find a way to contact the manager and be reassured they are still breathing. Other times, particularly since the closure of the forum on the Darwinex site, this is not possible.

In a non-leveraged live portfolio of 44 Darwins, started on 1st July 2020, I have had in-portfolio drawdowns of more than 20% in single Darwins. Although I have seen single Darwins rebound from in-portfolio draw downs of 15% , I am now contemplating an in-portfolio drawdawn of 22% in one of them.

For the moment I am holding to it as an interesting case to explore how bad it can get before recovery. But I will eventually decide on an arbitrary stop level somewhere in that region.

What is your level of "enough is enough"?

 

[jonfuentesx]

If we consider the Darwin as a company with its respective stock price, it is true, the company may be going bankrupt. Have you thought about simply trading this price and interpreting the Darwin exit as a stop loss? for example and with a basic method, simply sell the Darwin when it breaks its bullish line.

 

[FXforfun]

Well, if that equity is real. Investing on a Darwin like that is just a gambling game. Big movements up followed by relentless periods of degradation. Pure gambling just hoping that we can ride some vilent movement that brings us up before wiping out the account.
Clear sign that the trader behind doesn't know what is doing, what to do, or simply doesn't give a fuck.
Just pure random.

Regarding the question when to leave. That's the million dollar question . Anyway, definitly the point for that Darwin is not when to leave because we shloud have never come in.

 

[CavaliereVerde]

I am not using stops but if I had to use them I would set somentihng between 15-18%
My level of "enough is enough" is
Return 2Y < 0 AND Return 1Y < 0
This is my definition of loser.

I was always cirticized because I was investing too many darwins but I never reached 44 ...
IMO you should be much more selective and analyze every single darwin for at least 2 hours.
Today I would never go beyond 20 darwins, the interface is thought to manage max 20 and also the backtester is capped to 20 darwins.
I have 2 portfolios, one with 20 darwins and the other with 10, the small one is performing much better.

 

[morehastelessspeed]

I have 2 portfolios, one with 20 darwins and the other with 10, the small one is performing much better.

Are the 10 included in the 20, or are the these two completely different sets?

 

[CavaliereVerde]

7 darwins are in both portfolios.

 

[morehastelessspeed]

In the end, I decided to take that one and other loses, amounting in total to -2,76% of the portfolio.

So, I sold all the Darwins whose attributes had deteriorated to the point they did not anymore meet my selection criteria, and bought a few replacements.

This rotation has left me to start the new year with a portfolio of 23 Darwins, most of them in profit (portfolio Open P&L +1,81), where the largest in-portfolio drawdown for a single Darwin is -4,95 (image below).

Finally, a dead-pilot trailing stop has been set at -16%. After backtesting the best 20 Darwins in the portfolio, I think this should be ample enough for most of them (they have high Rs and Ra).

Nevertheless, I am revising the selection/deselection criteria with a view to make these more stringent, so there is likely to be some more culling during this semester.

Thank you all for your helpful replies, which I have found very useful.

 

[morehastelessspeed]

Here's an update 2 years after starting this "investor" account:

Becoming more strict in selection, while sustaining the investment at about 10K, has meant trading fewer Darwins and doing so with a larger % allocation per Darwin, which has increased the ups and downs of the account PNL during the second year. Yet improvements in account returns remain insignificat.

Currently 15 different Darwins have open positions variously distributed to one or more of the 5 portfolios. These portfolios have about 6 Darwins each (ranging between 4 and 8).

Postions are closed at the same size they have opened, withouth any pyramiding. Increases or decreases in size happen only on repurchase, or by adding another position of the same Darwin to a different porfolio.

Darwins in profit above a threshold are sold before the date when the performance fees are due. These Darwins are then repurchased only if and when they meet the selection criteria. Currently about 5 Darwins are regularly being repurchased, while the remaining 10 have been ranging in limbo, neither into profit nor hitting their stop-losses.

Each position is opened with a static stop-loss, at a distance proportional to the all-time Max Drawdown of that particular Darwin at the time of opening the position.

Here is an account summary and graph, for which I use only the data in the mothly reports (net returns graphed in blue with costs graphed in red):

Further below are images of the all-time PNL line of each porfolio.

Portfolio A (started at account inception 2020-07-01, unleveraged):

Porfolio B (2021-03-10, unleveraged):

Porfolio C (2021-02-08, unleveraged):

Porfolio D (2021-06-21, unleveraged):

Porfolio E (2021-05-25, leveraged 3x):

 

[morehastelessspeed]

Interesting blip effect...

Portfolio A:

Portfolio E:

 

[morehastelessspeed]

After 30 months of investment, the account finished 2022 at -2.4% of initial deposit of 11K. So far, minimum value has been -5% briefly during August-September 2021 and the maxium value +1% during the JPY dive of March-April 2022. These are the monthly reports of those 30 months:

2022 yearly report: 124.84 € net profit.

2021 yearly report: -164.29 € net profit

2020 yearly report (6 months): -227.0 € net profit

Obviously, I have found no edge in selecting Darwins, where traders are free to list a Darwin, blow it up, dump it, and repeat. After having been invested in 60+ different Darwins at different times, I would now only make new allocations to two of the 15 I'm currently invested.

If I ever make any money worth investing in Darwins, I will post again on this same thread. Otherwise, assume I'm no longer a data point for the indicator "number of investors per Darwin".

By the way, thanks for this forum community. Much appreciated.