Advantages of Trading $DWC vs. Other Assets

20 September 2017
The Market Bull

This post describes some of the advantages of trading $DWC over other listed assets on the DARWIN Exchange. A webinar on this topic will be conducted on Tuesday, October 3rd. Register here

The underlying fundamentals of DARWIN $DWC give rise to historically consistent behaviours in the asset that benefit both active and passive traders.

Compared to any other DARWIN on the Exchange (where only the DARWIN Provider’s decisions affect the asset’s movements), it considers a large number of community participants’ behaviours in its decision-making.

This affords its investment attributes and returns profile, a higher level of statistical significance than other DARWINS, and presents advantages for both active and passive trading.

We go on to describe these benefits in terms of:

  1. Return
  2. Risk and,
  3. Suitability as a Trading Instrument.

1) Return: Range-Bound Returns / Cycles

$DWC’s returns visibly demonstrate a fair degree of mean reversion, fluctuating in a stable range compared to other assets on the Exchange.

This range-bound behaviour presents itself on all time-frames in the $DWC, enabling short, medium and long-term traders to trade the asset.

For a quantitative perspective on this, you may find the following blog post useful, where we have conducted mean reversion tests using the $DWC dataset on six different timeframes:

[Darwinex Blog] Mean Reversion Tests on DARWIN $DWC

 

Active traders in particular can benefit from this tendency by e.g. being able to trade the $DWC standalone if they wish, designing strategies around the asset as it approaches its historical peaks (resistances) and troughs (supports) on any time-frame of their choice.

DWC Range-Bound Returns Cycles

DWC Range-Bound Returns Cycles (1-Year)

 

As its primary function is trading the opposite of asymmetric community exposure – behaviour which in itself is mean reverting by definition – $DWC demonstrating cyclical returns in this manner makes sense, further strengthening the case for active range-trading strategies leveraging this tendency.

This benefit is not limited to just active traders, as passive traders too can leverage this behaviour to time $DWC portfolio allocations for better value.

 

For more on this, you may find this blog post and the following webinar recordings helpful:

  1. [Webinar Recording] $DWC – Real Time Sentiment Index & Security
  2. [Webinar Recording] Effects of Market Volatility on Trader Performance
  3. [Darwinex Blog] Hedging DARWIN Portfolio Risk with $DWC

 


2) Risk: Stable Volatility Profile

$DWC trades a large number of currency pairs simultaneously.  The combined portfolio of currency pairs results in individual assets effectively cancelling out each other’s excess volatility, leading to stable movements overall in the $DWC.

DWC - Assets & Timeframes Summary

DWC – Assets & Timeframes Summary

Stable volatility coupled with mean reverting returns cycles, therefore makes $DWC a strong candidate for range-trading.


3) Suitability as a Trading Instrument

Active traders in the Darwinex Community frequently engage in trading price ranges and short-term retracements on currency pairs.

Retracement Trading Example

Range/Retracement Trading – Negatively Impacted by Deep Market Movements

 

Deep market movements in currency pairs can adversely affect such strategies, making range and retracement trading opportunities incredibly hard to exploit in live trading – especially for beginner traders.

With its stable volatility and mean reverting properties, $DWC presents traders (particularly those with mechanical trading strategies) with stable range and retracement trading opportunities, making it a suitable alternative to volatile currency pairs.

 

DWC - Normalized (With Range Boundaries)

DWC – Normalized (With Range Boundaries)


Additional Resource: Effects of Market Volatility on Trader Performance

Do you have what it takes? – Join the Darwinex Trader Movement!

Darwinex - The Open Trader Exchange

Darwinex – The Open Trader Exchange