Darwinia ranking – unfair?

We receive regular feedback pointing out that the outcomes of the Darwinia contest may not always foster our goal of democratising the markets.

For example, in response to last week’s post, Steven, mentioned:

“have been looking at the Darwins and the ranking. I spotted some traders that traded one of his/her strategies to 98% drawdown, however their respective D-score/ranking were not penalised. I wish one day the ranking algorithm will take into account for fairer outcome. After all I am sure your company do not encourage reckless risk management.
Cheers Steven”

Clearly, we share Steven’s concern – who likes reckless risk management – but as you’ll see, when you decide to do something one way, you have to stick with your decision, even if parts of it hurt.

This post will touch upon several aspects, including the technical details on the ranking, trader incentives, and how to solve this going forward. We sincerely look for input on this one – perhaps with your feedback we’ll find a better way!

Overrule the algorithms?

Darwinia is ranked weighting:

  1. Grades for the DARWIN based on the strategy,
  2. The Level as determined by those grades
  3. DARWIN performance for the natural month and
  4. A measure of activity (to make sure that high level DARWINs win without trading activity don’t contend whilst on holidays).

We’ve covered the mechanics of Darwinia levels elsewhere – the relevant point here is the fact that the DARWIN’s underlying strategy does NOT enter the equation. Which implicitly means that neither do its Drawdown, VaR level, etc.

Arguably relevant criteria like “he’s trading the strategy with very high VaR”, or “the trader traded his strategy to 98% drawdown” aren’t even evaluated. On account of this “shortcoming”, sometimes strategies with “reckless risk management” make the end of month cut for the 20 strategies that are awarded Darwinia capital for 6 months.

Shouldn’t we overrule the algos, draw the joker wildcard and introduce rules so that DARWINs with underlying strategy VaRs higher than X or Y  be disqualified from the contest etc. ?

Tempting! For starters, it may well save us some investing losses. But would that really help the underlying goal, in the long run?

We’ve thought this through, and think there’s a case for laissez faire (at least for now). If it proves too costly we may have to reverse course, but it’s important to share the pros of laissez faire.

We didn't invent this...

We didn’t invent this…

Arguments for laissez-faire

The first is transparency. Not tinkering with the rules.

If we’re the DARWIN exchange listing DARWINs – which are genuinely different from their underlying strategy – and control risk so that DARWINs run on 20% VaR, why introduce the underlying strategy into the investor equation? Doesn’t this send conflicting messages? The last thing we want is anyone accusing us of a non-transparent process.

The second is not judging people’s incentives. There’s enough gambling going on in the markets, and we’re clearly not here to encourage more. Then again, having spoken to hundreds of traders in the last few years, we realised there’s a (possibly small) subset of “rational gamblers”. Their argument is: I only manage e.g. 1000 USD, and I won’t be able to manage a meaningful amount for the foreseeable future. So I trade several promising strategies with deliberately outrageous risk. It’s my personal way to build a lottery ticket cheaper than anything offered in the gambling market.

Not everyone will agree, but provided the underlying strategies work, there’s logic to it. Indeed (some) DARWINs based on high risk strategies get good grades for long-ish periods of time –  compare DARWIN1, 2 and 3 with their underlying strategies. This begs two options. Option A is: the rating algorithms work, and the DARWIN based on the reckless gamble, with “investment grade” VaR, are investable for a while – in which case who are we to hide them from investors? Option B is: the rating algorithms need improvement, and we better get our act together to improve.

We welcome both. Simply “hiding” flaws in the algorithms or high risk in the closet would hurt the transparency of traders’ evolution, and paradoxically reduce everyone’s credibility.

The third is trust in market forces. Underlying strategies will always be visible to investors. Once hundreds of millions in Assets under Management (AuM) back DARWINs, presumably few investors will choose high risk traders, reckless risk however mitigated by the DARWIN, will put them off. Presumably even risk loving DARWIN providers will lower their VaR then… but we’re not there yet – our 0.5 MM capital allocation / month isn’t enough of an incentive for them to lower risk.

And last, but not least, there’s evolution. As AuM grow, Darwinex will both groom better traders in house (focussing on improving pays in the long run) and attract better traders who don’t know / can’t currently be bothered to join Darwinex. Nothing better to crowd out (rational or irrational) punters making the Darwinia cut every month, than higher density of good traders providing investable DARWINs.

When that happens, nothing would please us more than knowing that evolution worked its way through the ranking, without tinkering. Until then, the reality is that 90% of independent traders lose their shirts owing to nothing more than excessive risk taking. The only way to fix a problem is to acknowledge it – and that’s where we are right now.

Your thoughts?

Clearly, we couldn’t discuss this with users in length… so what’s your thought? Do you agree? Any argument we’re missing?

 

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52 replies
  1. Alex
    Alex says:

    As a investor on your site, I don’t look at all at the Darwinia score as it is unreliable, but returns (over 3% a month), drawdown (-15% max) and smooth curve. It seems some participants found a way to game their way into top 20 for allocation of funds.

    Reply
      • Jim
        Jim says:

        I find the site very confusing with all these different rankings, strats, whereby a lower number appears to be better, Darwin score whereby a lower number is worse, not to mention the Darwinia ranking which is different again. Maybe some simplification would be in order?

        Reply
        • The Market Owl
          The Market Owl says:

          Hi Jim,

          For sure everything can be done better and explained better. If you have specific suggestions, we’ll be happy to either explain or incorporate.

          On another note, “simplification” is not always good. Someone cleverer than us (meaning Darwinex, not you 🙂 once said “everything should be done as simple as possible, but not simpler”. Our goal is to provide enough information so that informed traders & investors can form their own opinion about any given strategy, with our algorithms hopefully adding a lot of value with just 6 0-10 grades (which honestly, is not too much imho). We deliberately shy away from “spoon-feeding” investors with a single score etc. as trading, and picking trading strategies is a complex affair.

          Our opinion is: if you don’t understand what you’re doing, don’t invest, and stay away from those who “simplify” too much. Not a good sign when it comes to complex investments.

          Reply
      • Senito
        Senito says:

        Regarding Drawdowns: are these measured on a ‘live’ basis (ie. Intra-trade) or only after trades are closed?

        Just asking because imo positive risk-reward expectations and use of stop losses are cornerstones of any sound trading strategie and therefore given a high wheight in the ranking at Darwinex.

        Reply
        • The Market Owl
          The Market Owl says:

          Hi Tom,

          all Darwinex statistics, including drawdowns, are calculated on changes to end-of-day equity values. E.g. valuation of trades (whether open or closed) at end of day are taken into account. Also, maximum intra-trade favourable and adverse excursions are displayed and calculated in the Consistency Investable attribute.

          In other words, “hiding corpses in the closet” – e.g. only closing winning trades and those sort of “performance optimisation” techniques don’t help you over here 🙂

          Reply
  2. Vlad
    Vlad says:

    Short answer : Yes 🙂
    Long version: I don’t believe any talented traders will be attracted to Darwinex via Darwinia. Your main attraction points, as I see them: – regulated, serious broker and asset manager
    – good trading conditions
    – interests of traders and investors aligned through the way incentives are payed (% of performance instead of % of volumes traded)
    What you’re doing with Darwinia is to mostly reward gamblers/lucky monkeys. As a side note, thank God at least you’re not paying them cash anymore. You’re going way beyond democratizing and actually rewarding/encouraging (though not willfully) bad behavior. The short time-period (1month) which makes sheer luck to be a big factor, and the fact there’s practically no entry barrier (length of track-record, actual capital at risk – skin in the game, soundness of underlying strategy – you might reward a Martingale who has caught a good month) are recipes for disaster.

    You yourself acknowledge that once the AUM grows, very few investors (probably those who got lost on their way to Zulu or Etoro 🙂 ) would back the Darwins which have ridiculous characteristics (almost no skin in the game, 80-100% VaR, a thousand trades a month). In this case, why does Darwinex back them now via Darwinia ? Why not let them quietly blow themselves up?

    A last point, on the actual ranking algorithm: there are 2 IAs (Consistency and Scalability) which are clearly substandard. (although I heard improved versions are coming soon). Experience and Risk Management obviously don’t play a major role in the Darwinia rankings. So we’re left with the 2 IAs that are the most prone to luck: Performance and Timing. So once again, when luck meets with a short time period, you can’t expect something good/durable to come out of it.

    Reply
    • The Market Owl
      The Market Owl says:

      Vlad,

      thanks for your comments – I do agree on some of them, but some others are not borne out by facts.

      Our main concern is: you seem to be implying that investing in Darwinia winners is Darwinex’s recommendation on how to make money. It is not. Darwinia is largely a communication exercise: our way to prove that we trade with our customers, as opposed to against them. We thought it was the best way to prove our point. It is not a recommendation to invest, and neither did we claim picking the top 20 at the end of any given month is the best way to invest.

      I totally agree we need to do a better job of communicating this (BTW: devoting the last 2 blog posts to this purpose is our first step in that direction.)

      Beyond that, I believe it’s worth stating our opinion on some of the statements you make, for the sake of clarity.
      – The Darwinia capital allocation contains a 20% success fee on 6 month performance. You don’t make money after 6 months, you don’t make a cent. There’s no reward without performance.
      – There are barriers to entry into Darwinia. First is that only live accounts are admitted. Second is that only DARWIN providers participate: to even last enough to list a DARWIN requires in most cases 2-3 months of full time trading activity – tons of trading accounts never even live that long. Third: the ranking heavily rewards consistently high grades on all IAs and this is quite hard. Describing entry into Darwinia as a free for all is, imho, a bit of a stretch.
      – The statement “Experience and Risk Management don’t play a major role” is inconsistent with the weight carried by levels in the monthly reward – see above.
      – The statement “Consistency and Scalability” are substandard – things can always be improved – thanks for pushing us on! BTW – below what standard? to the best of our knowledge Darwinex are first to try to measure either 🙂
      – The statement “Performance and timing” are the most prone to luck is your judgement call. We’ve published how both work, so everyone is welcome to form their own. We don’t share that statement.

      Overall, if a guy just landed from Mars read the comments he might conclude the Darwinia list of winners is a collection of morons who blew their accounts the month after receiving the capital allocation. I agree there are flukes in it – but there’s also a bunch of guys in there who’ve made money consistently for 2 or 3 years in a row.

      Looking back on the first year, Darwinia has been a great way to put Darwinex on the map. It’s also a first step in testing how traders react to a healthier trading incentives, and overall, a lot more good traders are with us now than were before we launched it. You might argue that running “a ridiculous contest” is not the best way to achieve the result… so feel free to let us know how to improve it!

      Reply
      • Vlad
        Vlad says:

        Hi
        We’ll just have to agree to disagree.
        A few clarifications: – there are winners of Darwinia with Experience grade of under 5 or even under 2. Similarly for Risk Management -> that’s what I meant by saying they do not play a major role
        – re Performance & Timing – you have a proven strategy that threads water 8 months of the year and makes its profit during the remaining 4 (a trend following strategy for instance). It will get low grades during those 8 months and good grades during the 4 months on Performance & Timing. It will be beaten on Darwinina by random or kamikaze strategies (martingale) that caught a lucky streak during a month. As you know, there are plenty of EAs which work for a time, and then bomb
        I never implied the winners will blow up right after they win Darwinina. I don’t know when a strategy will blow up, even though I may be 99% certain it will (Martingale for instance).

        Reply
        • The Market Owl
          The Market Owl says:

          Hi Vlad

          Thanks again for all the engagement – loving it 🙂

          There have been guys with low-ish Experience grades & others with low risk management grades (in this case the effect for the investor is less pronounced as there’s risk management in place to control independently from the traders). The more relevant point is how many out of approaching 100 guys, I’ll dig out the list of winners and share with you.

          On another note, thanks for the suggestion on the VaR filter. We’ll give this some thought and perhaps set an exclusion filter for guys who trade their strategy on outrageous VaRs – it would weed out a lot of the recklessness for a purpose that’s in line with the spirit of the tournament – to behave investably.

          Reply
  3. Vlad
    Vlad says:

    As to your point that good traders will crowd out the punters – what I’m afraid of is that the reverse will happen (is already happening). The supply of people who are willing to risk a couple hundred bucks on an EA running full VaR is much much bigger than that of actual traders.

    This could turn into a much ampler discussion on how D-score is constructed – because if the same type of people (XedFX for instance) make the leaderboard on both Zulu/Etoro/Myfxbook Autotrade and Darwinex, then Houston, we have a problem. 🙂

    Reply
    • The Market Owl
      The Market Owl says:

      Hi Vlad,

      Thanks again for an ever more lively discussion!

      Our internal information does not suggest that anyone is crowding out the good traders 🙂

      The general philosophy is to publish what we consider relevant information (a trading journal with all trades in a useful visualization and a proper measure of risk, D-Leverage, some algorithms that correlate with long term performance in statistically significant samples, VaR of underlying strategy, how much own money the strategy is risking, etc.). Above all, algorithms “equalise” risk for both traders and punters on a common 20% VaR standard.

      I agree that running full VaR is not a good idea (at least not when I am risking my own money), but for the purpose of the Darwinia discussion it’s out of scope as everyone, both “traders” and “punters” DARWINs compete on a level (risk) playing field.

      Nothing would make us happier than paying you lots of money for success fees as a trader, or your making a lot of money by taking the information you consider useful and ignoring the information you consider useless as an investor. In fact, we’d be delighted if you chose to publish your own criteria on how to pick the best long term consistent traders on Darwinex and made a killing by helping other investors make money.

      Ultimately, it’s a win-win for you and everyone else involved, and that’s the kind of profit exchange we wish to grow up into!

      Reply
      • Vlad
        Vlad says:

        These are 2 different topics: 1.on Darwinia, my opinion remains that it’s the wrong type of PR exercise. The more I looked into it, the more at odds it appeared with what the rest of Darwinex stands for. My educated guess is that you’ll end up losing money on it (I calculated the allocations for October and November and my rough estimations point to a ~60k loss out of the 640k allocated, with 2 respectively 3 more months to go). But even if you manage to make a profit, I still don’t think it will get you any closer to your goal – find talented traders and good investors.

        2.on how to go about selecting Darwins as an investor: I haven’t really given it much thought so far, as I’ve mostly been wearing my trader cap. I guess there will be a lot to write about on this subject in the coming months.

        Reply
        • The Market Owl
          The Market Owl says:

          Hi Vlad,

          many thanks for the valuable suggestions. Reflecting on this post, and your personal suggestions, we’re looking into two improvements:
          – A maximum VaR for the underlying strategy to be eligible for the Darwinia allocation
          – A “news” flag whereby if you trade during certain pre-defined news releases, your DARWIN is not eligible for Darwinia

          We still need to do some research to define and work to implement it, but we agree that some aspects of the rules can be improved.
          On your comments – we both know that hindsight is an easy perspective on which to judge decisions :-), and you won’t find 15 comments on blog posts from 6 months ago the way you do with the current ones. So not everything is bad about a bit of cheerful & informed discussion.

          So thanks a lot for getting it going!

          Reply
  4. fxone10
    fxone10 says:

    1. In my private opinion, Darwinia prefers slightly scalpers than swingers… I mean that for the Timing, which is crucial and most important criterium, is quite easier to get better result when we are are on the market for minutes/hours of trade duration than days/weeks… But I need to say that this is my suspicion more than hard proof. Scalping systems are mostly based on oscillators which are more precise on lower timeframes and shorter durations. And I don’t know if Darwinia has some correction to this fact. I only mention it to overall consideration.

    2. For 3 months of active trading, in fact for Darwinia challenge only (BTY is now inactive), I was hugely frustrated because of this suspicion mentioned above. BUT I need to say, that I am now hugely GREATFULL for that to Darwinia creators and providers, and also participants. This is my sixth month when I’m struggling with rebuilding of my system (outside of public Darwinia) to improve my Timing and it looks that I did it (3 times better: from 2.1 to 6.6). I only need to add some aspects to get better results and to be truely competitive to other Darwinia particpants. I am sure, that Darwinia will evolve slowly and consequently, as I am for 9 years now…

    CHEERS MATES!

    fxone10

    Reply
    • The Market Owl
      The Market Owl says:

      Hi Mariusz,

      our goal with Darwinia (possibly not well communicated up to date) is to spur everyone for evolution in several fundamental aspects of trading.

      Wrt to scalping vs swing trading. We’re in the early stages of evolution. You’re right that optimising in a short interval is easier than in a long interval. But the goal is not to compete with others, but to improve your own strategy to its own best. Once more investor AuM flow in, those with the longer timeframes will sport the higher scalability and land the larger (absolute) Assets under Management. Yes it’s easier to make % gains in short timeframes. But it’s a lot harder to scale above the hundreds of thousand of investor assets, whereas if you trade for days or weeks at a time, millions are entirely plausible.

      So – keep doing as you’re doing. Focus on yourself, trying to beat yourself, and the rest will follow. It’s a marathon, not a sprint.

      Reply
    • Alessandro
      Alessandro says:

      My vision is sowhere between Vlad and Market Owl.
      My strategy follows the momentum and manages the trades with a trailning stop.
      Thise leads to very high returns of my darwin but low timing and medium consistency.
      The reason of my high return is that I am quite always in the market.
      People who risk 60 pips to make 30 pips have very high timing but low returns for a 20% risk.
      My profitability is caused by patiance and holding the right positions as long as possible.
      Timing should be changed to “time management” where you should measure also patience not only precision.

      Reply
      • Handon
        Handon says:

        I think Timing should be removed from the investable attributes. I remember Juan said in a video that a strategy with a high Timing score usually has a high Performance score. If it is true, then Timing and Performance are fairly correlated and we only need one of them. If it is not true, then some investors may be confused and have no idea why a strategy has a high Timing score but a low Performance score. For traders, if all of his trades are breakout trades, then the Timing score will definitely be low because most breakouts fail these days while his Performance score may or may not be high. Traders who trade reversal setups will generally have a high Timing score, but his Performance may not be good. Another reason that Timing should be removed is that most investors do not care about Timing. What investors really want are consistently profitable darwins with low drawdown. Scalability is important when asset under management grows to a big number.

        The attribute of Risk Management should have a different name. It misleads investors into believing that a higher Risk Management score means better risk control and therefore lower drawdown and smaller variation. The descriptions of Risk Management are as follows. From 0 to 10: Is risk in the underlying strategy stable over time? The higher the score: 1) The more alike the Darwin & the underlying strategy will look, 2) the less likely sudden movements in the Darwin’s price will take place & 3) the more likely the Darwin’s target risk will be met. I think that the first point is certainly true, the second point is probably true, while the third point is not true. I have found that a lot of darwins with high Risk Management scores do not meet target risk (for example FTA had at least five drawdowns of over 20% in the past three years). There are also some darwins which meet target risk but do not have high Risk Management scores (example: SRK). Investors are NOT interested in how alike the Darwin & the underlying strategy will look. When they see Risk Management, they want lower drawdown and smaller variation.

        Reply
        • The Market Owl
          The Market Owl says:

          Hi Handon,

          many thanks for the thoughtful comments – and sorry it took a while to get back.

          @Timing: as a general rule, the investable attributes are designed to be statistically independent. We could get into quite a bit of detail on this (perhaps enough for a webinar in its own right!). But a great strategy could have a great performance score for reading big movements (beats all random winners) and a low-ish timing score if timing not fully optimised. Both are not incompatible

          @Investors: I agree that a lot of investors will not understand these nuances – but after long and hard thinking, we have decided to stick with rigour. We’ll offer the information if we feel it adds value to us with our investor hats. It’s true that most investors won’t initially understand them:
          – If they do the homework and understand it -> they’re target Darwinex investors
          – If they don’t do the homework – perhaps investing in trading strategies is not right for them

          I appreciate this might sound suicidal, but believe me, 2 years ago when we talked about timing and performance everybody thought we were a bunch of loonies. And now it looks as though you understand the algorithms better than one of the founders – and that’s exactly the way we want it to be.

          @Scalability: An upgrade to this and the consistency IA on their way. Hope you like them!

          @Risk management: you’ve made some valid points in there. Will try and think through and upgrade. What name should it have? On the 5 drawdowns of 20% or more in 3 years – I appreciate that’s an exception, but it’s not statistically incompatible with the expected 2-3 in the period. Not saying that the algos are perfect, or can’t be improved for specific styles (we’re improving them all the time) but you’ll always find outliers in a sample. Note – this comment is not as much aimed at you as it is at other readers 🙂

          Thanks a lot for the comments anyhow – being challenged this way is a great step forward for the movement’s technology developers!

          Reply
          • Vlad
            Vlad says:

            I agree with Handon, Risk Management IA with its current description is confusing – a more suitable name might be Risk Stability. This way no one can object that a DARWIN with the underlying strategy trading at >50% VaR and big drawdowns, has a high score on this IA.

          • The Market Owl
            The Market Owl says:

            Hi Vlad & Handon – thinking of a more suitable description. Risk stability is part of, but not all of it. Something like “strategy tracking” would be closer to the mark. What it actually tracks is how closely the DARWINs’ equity curve tracks the equity curve of the underlying strategy.

            Totally agreed that once this grade rates the DARWIN, Risk Management is off. Thanks for pointing this out guys. Ashamed it had to be you!

  5. James
    James says:

    Hi Darwinex,

    I am a little late to the party on this but I have been reading with great interest. I think Vlad made some very important points and that the D-Score currently does seem to reward those that use excessive D-Leverage.

    “There are old traders and there are bold traders; but there are no old, bold traders”

    To counter this, would it be worth adding a ‘Risk of Ruin’ factor to the one of the investable attributes or maybe as an entirely new attribute? It’s not perfect but maybe it will help even out the league table, where high risk traders will be penalised the closer their risk of ruin is.

    I realise the D-Score isn’t an indication of where Darwinex suggests who to invest with but, for what it’s worth, it probably should be. I think the traders that can maximise their returns for the smallest amount of risk, deserve the most credibility and, consequently, financial backing.

    Reply
    • The Market Owl
      The Market Owl says:

      Hi James,

      Good sentence on bold & old – I’ve heard this with pilots in the past, and I agree it’s true.

      Several points on this:
      1) Risk of ruin. There’s a structural issue – I call it the pea-nut problem. A lot of guys trade with “suicidal” risk in the hope of growing their own capital (too) quickly. Until there’s hundreds of millions in investor AuM, they could say: my odds to making a decent living are higher if I consciously run a high risk of ruin rather than try to live off the success fees. In the short run, they are right.
      2) Posting minimum margin: we know there’s good traders with us who “play” with strategies on the side. If they can cope with the stress of bordering account ruin – in the sense that this does not condition their trading, does that make them bad traders?
      3) Transparency: you wouldn’t know the guy’s risk if we didn’t publish both D-Leverage and underlying strategy VaR. I appreciate it takes effort to understand both, but they’re there for any investors who consider this information relevant (I, for one, do).

      Going forward, I appreciate some investors might need to be told in which DARWINs to invest. After thinking long and hard, that’s a role Darwinex (DARWIN Exchange) won’t play, at least not with current management on deck. That doesn’t mean knowledgeable users such as yourselves can’t do it, and earn nice revenues from grateful investors for it – nothing would please us more than enabling such eco-systems.

      Having said that, when it comes to Darwinia, we’re thinking of introducing a VaR limit to qualify for rewards. E.g. if your account trades with a VaR most investors deem closer to gambling than investing – then you won’t qualify for Darwinia earnings. Any thoughts on that? If so, what VaR level is appropriate in your opinion?

      Reply
      • Handon
        Handon says:

        I think that ‘Risk of Ruin’ as an investable attribute can be applied to darwin, not the underlying strategy. Although Darwinex claims that all darwins are at the same risk level(20% drawdown every one out of twenty months), it does not mean that all darwins have the same or similar Risk of Ruin. Some darwins have huge drawdowns (over 40%, TTB even 99.66%) and/or frequent drawdowns of over 20% (much more often than one out of twenty months). Since investors are investing in darwins (not underlying strategies), the Risk of Ruin of a darwin might be useful information for deciding whether or not this darwin is worth investing.

        By the way, “strategy tracking” sounds like a good name to replace “Risk Management”.

        Reply
  6. Alessandro
    Alessandro says:

    As for timing I totally agree with Handon.
    It is not a question of optimization, I enter crossing two moving averages.
    If the two MA difference is 5 periods the perfect entry will always be 5 periods before the cross,
    but before the cross there is no signal… the same happens with breakouts entering with stop orders.
    Ther is no fine tuning there I have to change completely my strategy to have some significant improvement in timing.
    Timing is designed for traders who try to anticipate the market.

    Reply
    • The Market Owl
      The Market Owl says:

      Hi Alessandro – many thanks for the comment.

      I understand (& respect) why a DARWIN provider would make that statement, but the timing attribute is designed foremost with the investor in mind.

      If I were an investor, all other things being equal, I’d be re-assured if the market always went my way as soon as I entered a trade. I appreciate not all strategies work that way, but again, if another provider using a more efficient trigger achieved that on trade-entry, he’d deserve a better investor grade (on open trade) than whoever didn’t.

      BTW – we’re preparing upgrades to the section where you can explain your strategy to potential investors, so you can make such points with investors. Ultimately, it’s their money, so it’s their choice where they place it.

      Reply
      • Alessandro
        Alessandro says:

        But other things AREN’T equal !
        Scalpers with good timig and bad scalability can go EXPERT.
        Trendfollowers with bad timing and good scalability stay ROOKIE.
        I think that avoiding divergence and slippage is much more important for investors.
        Idon’t think that there are trendofollowers able to predict a moving average cross or RSI crossing 50 or Stochastic or Momentum…

        Reply
        • The Market Owl
          The Market Owl says:

          Guys, if you deliver positive profits every month for the next 4 years, no-one will be happier than me in being called a fool…

          Best is to focus is one-self. The rest follows. SERIOUSLY.

          Reply
      • Vlad
        Vlad says:

        Hi Juan
        It seems to me that more often than not, a high Timing IA acts as a proxy for scalping, highly optimized, (very) low scalability strategies. Within the D-score, it has much more weight than it should have, in my opinion. With the goal of Darwinex to attract high AUMs in the future, why are strategies that won’t scale beyond a few hundred thousands $$ because are highly optimized for trading at the lowest liquidity times (close NY – open Tokyo), on low liquidity pairs (EUR/GBP GBB/JPY GBP/AUD and so on) strongly promoted via the Timing IA ?

        Beyond the scalability issue, any moderately informed investor would be wary of such highly optimized (one trick-pony) strategies, where the luck is bound to run out any time. Once again, why promote them via the D-score ?

        You say above in answer to James that Darwinex doesn’t tell investors in what to invest – but it can be argued that you do so indirectly with D-score and the levels. For instance, a strategy with near zero scalability can be declared Advanced because it has high Performance & Timing while a strategy that could handle tens of millions (trend following for instance) will stay at Rookie because of Timing IA.

        So in my opinion the D-score and the levels in the current algorithm are not optimized to attract the best informed, richest investors.

        Reply
        • The Market Owl
          The Market Owl says:

          Hi Vlad,

          The goal behind the D-Score, Darwinia etc. is to nurture the trader community – not tell investors where to invest. This will be made more and more clear as we go forward.

          This arises because we haven’t yet released the tools whereby people can filter the community on IAs and other attributes. Whenever that happens, we’ll basically re-trench and allow everyone to do as they see fit. Believe me, no-one will be happier than me to see this (futile?) discussion put to sleep.

          On a separate note, do you think we have a magic wand to guide people investing tens of millions at a time by calling a strategy “rookie” or “advanced”. Ultimately I’d like to think they make their own calls. All the information required to make a call is open for them to research…

          Reply
      • Bob Nat
        Bob Nat says:

        Ok, I’m going through the replies and I found this one.

        “If I were an investor, all other things being equal, I’d be re-assured if the market always went my way as soon as I entered a trade. I appreciate not all strategies work that way, but again, if another provider using a more efficient trigger achieved that on trade-entry, he’d deserve a better investor grade (on open trade) than whoever didn’t.”

        What type of investor watches each trade to see how much heat it takes? If this is what the investors in Darwinex are doing then they are not worth having. These are people that will try to micromanage the trader. I know this from experience that anyone who wants to know what I’m trading and when is only going to be a pain in the butt.

        The only investor worth having is the one who only watches drawdowns and returns. They have no business watching trades. If they want to do that, then they should trade their own accounts.

        Reply
        • The Market Owl
          The Market Owl says:

          Hi Bob

          We agree micro-managing investors can be a nuisance. That’s why there’s no communication channel whereby investors interact with traders.

          On the point of which investor to welcome – this is an Exchange.

          It’s a fact that thoughtful investors do better for themselves than casual ones, but then again every thoughtful investor has made mistakes.
          Mistakes are what made him thoughtful in the first place 🙂

          Reply
  7. Bob Nat
    Bob Nat says:

    I just found this site recently and I find it interesting for a few reasons. I agree the rating system is flawed. My main concern is the drawdowns some of these people incur. As of right now, your 4th and 5th ranked traders have dd’s of 42 and 55%, respectively. No investor with money or a brain would want to invest with them. How does this person get ranked so high, https://www.darwinex.com/en/product/VOZ.3.4/ when he has a -33% return with a 55% dd?
    Perhaps I don’t understand how your numbers work. That would be telling, if true.

    The other thing I find problematic is the low scalability factor of so many of your top “traders”. They are grabbing 5-10 pips with a micro-lot, often riding out multiples of that in a loss, hoping it comes back. Most of these systems could not handle a million dollar account, much less tens of millions.

    I think the idea of Darwinex is a great one that could help and educate a lot of people. But for now, all you have are a bunch of guys throwing shit against the wall and seeing how much of it sticks.

    Reply
    • The Market Owl
      The Market Owl says:

      Hi Bob,

      many thanks for your comments. A few notes:
      0. Our motto is “Will you rise or fall”. We believe that the best independent guys can make it. But that also means most won’t.
      1. Darwinex = DARWIN Exchange. We list strategies by independent traders, offer what we think is helpful statistics (more to be added if you suggest them) and manage the risk independently from the trader. We have never promised anyone any returns – we’ve put the strategies out there, and the best guys are getting an honest way to make a living as traders. Are all the stocks in the SP500 worth your money?
      2. Transparency: the reason you can tell non-investable strategies before investing is that we don’t shove shit under the carpet (to put our language at your level). Yes, some deride us, but it’s still better than secrecy
      2. Rating system flawed: The more data we gather, the better it gets – it’s an evolutionary process. Having said that, on what statistically significant grounds do you conclude that it is?
      2. Scalability: you’re right, many of the strategies aren’t scalable beyond a million. That’s why we 1) disclose a scalability score (to the best of my knowledge, we’re first to publicly track this) and 2) shut DARWINs for new investment once investor and trader performance diverge excessively. Every investor goes into this with open eyes. BTW – would you rather back 10 strategies making good returns on 1 million, or a single one with 10 MM?
      3. Investors brains: we don’t make judgment calls on investors brains. We provide them with information, including where other investors put their monies, so everyone stands better chances.
      4. On your comment “all you have is a bunch of guys … stick” (good sentence, I’ll make a note to use when appropriate 🙂 This is human nature. We’ve got them. 90% of Hedge Funds have them. We put all information out there for everyone to see. They polish it with a ton of BS and Chanel 5.

      Rather than raise bucks from a rich guy and make him richer (Hedge Fund) , we give everyone, regardless of wealth, the option to invest (Open Exchange model)
      I personally believe it’s a better model than anything which is out there.

      Meanwhile, THANKS!

      Mahatma Gandhi once said: first they’ll ignore you. Then they’ll laugh at you. Then they’ll fight you. Then you win.
      More and more blog comments indicate we’re now at stage 2/4. Sure we can (and will) do better. But it’s not too bad for a couple of years of evolution!

      Obviously, time whether the approach works or it doesn’t, but the timeframe to assess how far we’ve got is 10 years down the road, not 6 months after opening the investor platform:-)

      Reply
      • Bob Nat
        Bob Nat says:

        Hi,

        Thanks for the thoughtful and honest reply. Your candor is refreshing in this environment that is mainly bullshit. On reflection, the fact you do show the flaws in a trader’s system, such as dd and scalability, is unique and admirable.

        I came off in a critical fashion in my post. I have a friend who has more money than financial knowledge who asked me to look at this site. I have a fair amount of knowledge and trading experience. After studying a bit, I then walked my friend through the problems, such as the massive dd’s and scalability. What he does is his choice, but at least he now has some knowledge. However, as you clearly pointed out, it’s caveat emptor. You don’t have the responsibility to educate investors, yet your site is trying to do so in its way. That is to be applauded.

        I truly think your model is a great idea and I hope you work it out into something sustainable. I do think your greatest challenge at the moment is working out a way to award a higher rate to the traders who work on longer time frames with less trading and with lower returns, yet who are consistent in returns and risk.

        By the way, thanks for coming down to my level. It made it so much easier to understand you. 🙂

        Reply
        • The Market Owl
          The Market Owl says:

          Hi Bob

          Thank you for the details. Knowing how to pick traders, you’ll be glad to hear that your friend will soon be in a position to track your trader portfolio and relax 🙂

          Beyond that, I agree this won’t work overnight (nothing really worth doing does), and it’ll require involvement by people like you to make it work.

          On the scalability front, things are growing at speed. At the current rate of AuM acquisition, the first strategies will shut for new investment pretty soon. That will likely open the way to more scalable traders who don’t yet show in the limelight. That in itself will mark a milestone for us – the first DARWIN that came full circle.

          Please don’t hesitate to reach out if you have trouble building your portfolio or see anything you think can be improved. We’ve got plenty of that around here, too 🙂

          Reply
    • Vitor
      Vitor says:

      Agree on your observations. Besides trading I’m an investor for many years (more precisely since 1999). I am used to compare several metrics and am from the old school, so, a gain is a gain, a loss is a loss. Here, with the Darwins can happen otherwise. Take the case of PLP. While in July he lost -97%, his Darwin returns a gain of 28%!! Not to mention he was rewarded with a fifteenth place in Darwinia (July) having a mere twon months of trading history!! The problem will certainly be mine, I’m old school. Cheers.

      Reply
        • Vitor
          Vitor says:

          Thank you. I know it. My question still not responded – how a Darwin with a 28 % gain can result from a strategy that has lost almost all the capital (-97%).

          Reply
          • The Market Owl
            The Market Owl says:

            Hi Vitor,

            It looks like the blog post will have to wait.

            Think through the following experiment, with a strategy that wins 80% of trades, and wins x% of capital on winning trades, and loses -x% on losing trades.
            – If x = 1%, after 100 trades, the cumulative return for the strategy will be (on average over a large enough sample of trades), return 80%
            – If x = 100% (which is not unreasonable, given you can lose everything in a large levered trade), the result in most simulations will return 0% – even though it’s exactly the same strategy

            The way to understand in words is:
            – If you trade with a low enough risk per trade, you’re as good as your average trade
            – If you trade with a high enough risk per trade, you’re as good as your LAST trade

            The strategy you mention has a large VaR -> risks a lot per trade -> blew up on a bad trade / relatively short sequence of trades. If you had traded the exact same strategy with lower risk per trade, it’s entirely possible that it could have made good money.
            Just have a look at https://www.darwinex.com/en/product/IVU.3.11/ vs https://www.darwinex.com/en/user/QQ623736908/summary/IVU.11/ for an even more striking difference.

            I will also send you an Excel sheet so you can play around and see for yourself.

  8. Vlad
    Vlad says:

    Let me elaborate on what I meant with ‘let’s make Darwinex great again!’. The focus about a year ago when I really got enthusiastic on Darwinex was the new asset class that will allow independent traders to be sort of a hedgefund manager from home. Trade good and consistently and through Darwinex you’ll be able to live off your trading. Slowly the focus has shifted on DarwinIA and it got to the present time when it seems that Darwinex equals DarwinIA; you can’t escape it, it’s on Forexpeacearmy, Myfxbook and on my phone with Google ads. Whereas in the past the message was that Darwinex can be a life-changing experience (remember this post, making 180k/year to start with http://blog.darwinex.com/introducing-long-tail-investing/) now it has reduced itself to a short-term game/lottery where best case scenario you end up with less than 10k/year.

    Making Darwinex great again means focusing the advertising on its unique legal/logistical infrastructure. And then concentrating on raising the profile of DARWINs so that the leaderboard gets long term allocations in an organic way, not short term and haphazardly as it now is the case (FTA, ZGE, KDU,TTB and so on). How to best do that can be discussed at length, but before that it is absolutely necessary to get rid of DarwinIA. You can’t credibly advertise DARWINs as an asset class worthy of investors’ attention while running DarwinIA and on one hand losing money on it and on the other allocating to the likes of TTB.

    Reply
    • The Market Owl
      The Market Owl says:

      Vlad –

      Welcome to have you back with us.

      Your comments seem to ignore relevant criteria to assess Darwinia:
      – What more convincing way can you conceive that we invest with (as opposed to against) our trading customers?
      – How many traders (and business volumes) are with Darwinex since we introduced the contest – I can tell you it’s a lot
      – As a broker, we have ways other than investing profits / losses. The Darwinia numbers add up.

      Overall, you keep pointing to Darwinia as our flagship product to attract investors – whereas it’s exactly the opposite: our flagship product to attract good traders. I doubt any good trader will much care what others are doing with their Darwinia allocation: if you have good consistently good grades (which takes QUITE LONG to achieve, and is not achieved in days, as you keep suggesting), you have VERY high chances of landing a capital allocation. And if you grow your capital allocation, you earn your 20% success fee – that’s about as good as it gets.

      So: you may or may not like it. Good traders seem to like it – they keep joining Darwinex, which is totally the point. So: Darwinia works.

      When it comes to the investor platform, I hope you’ve noticed every Darwinex investor can freely check how much AuM are tracking each trader – and that’s a lot better way to make an investment decision than looking at an end of month Leaderboard in Darwinia. Investors are making the right choices: our retail investor base is achieving performance UNTHINKABLE to any other retail platform like ours.

      So: I’m very happy to report that there’s no need to make Darwinex great again – more and better traders are joining, existing ones are learning to manage capital iwth Darwinia, so: it’s getting better every day. This is not to say that lots can’t be improved, we’re working on it, and together, YES WE CAN 🙂 Much prefer Obama’s inspiration to Trump’s misguided fatalism….

      Reply
  9. Stop complaining
    Stop complaining says:

    Hi Darwinex, hi all

    I’ve spent quite some time on your website and I think I’ll problably join Darwinex as a trader, maybe as an investor too.
    I don’t usually come out of the blue writing comments, but hey, I could not resist this time, really.
    I appreciate Darwinex concept and his transparency above all, which is often lacking in other cases.

    I understand some traders complain about the Darwinia ranking system. I would strongly suggest them to get back to their platforms and just trade, no offense.
    Be profitable for the next few years if you can and then come back talking about algorithms. Not before.
    If you really are that good at trading go out there and open your own wealth management company and find investors youselves. It’s that simple.

    Just be happy and trade, possibly making good results and improving your trading style, and maybe you’ll also find investors through Darwinex.

    Reply
    • The Market Owl
      The Market Owl says:

      Couldn’t agree more Mauro. Listening to some, it almost seems like every other broker allocates 1.5 million a month to its best traders…

      Thanks a lot for the encouragement, it means the world to a team that’s breaking its back to make this happen.

      Cheers

      Reply

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