Imagine accessing the diary of a person you had never met before: wouldn’t this afford you in-depth insight into the personality traits of its owner?
At Darwinex that got us thinking: how about a tool providing in-depth insight into any trading strategy?
Thus came about the Trading Journal: it’s a visualisation containing all the trades in a trading strategy, providing insight into its main attributes – particularly its Risk Management – at a glance.
This is what it looks like (just click the image to enlarge it!) and these are its elements.
Measures the strategy’s performance from inception, tracking the value of balance every time a trade is opened or closed (i.e. when a new position starts). The performance calculation takes into account (i) the performance of a trade when it has been closedAND (ii) the performance for the trades that remain open when a trade has been closed.
Shows a strategy’s performance over any user-selected period – offering any potential investor a way to track performance for any period of interest… which comes in handy since recent performance mostly differs from performance from inception!
For instance, a strategy initially losing 50%, the recovering to 100% of the initial deposit could yield 100% performance to investors entering at the lowest point! Range Return is designed specifically to get a more accurate impression of a trader’s performance.
D Leverage is a measure of risk. It tracks the risk incurred by each position in a strategy in terms of average EURUSD volatility. What does this mean?
A EURUSD trade with 1:1 utilised leverage has a D Leverage of around 1
A EURJPY trade with 1:1 utilised leverage has usually a D Leverage higher than 1 – this is because the EURJPY is more volatile than the EURUSD in average – and thus riskier
What is TS Leverage for simultaneous trades in multiple assets? This is where it shines: D Leverage of 6 means “6 times as risky as the EURUSD over the period”, etc. It captures hedging effects, i.e. two highly leveraged trades in negatively correlated assets can result in a low risk trade
What does a constant evolution of D Leverage say about a strategy? The closer a trader sticks to a D Leverage, the better – this evidences that any positive returns are not engineered by leverage illusions (martingales), where winning trades randomly deploy higher leverage than losing ones.
The D Leverage chart on the Trading Journal uncovers strategies deceiving inexpert investors through such illusions: beware of strategies where D Leverage increases on losing positions.
Tracks the number of simultaneous open trades in a strategy. Combined with D Leverage, it is proof of a trader’s skill at keeping risk constant: good traders open new trades without affecting their D Leverage. In short, this is a powerful tool that evidences a trader’s ability to cover risk by opening new trades (hedging). Beware of strategies in which D Leverage increases with new trades: this is conclusive evidence of the presence of leverage illusions (martingales).
Tracks the evolution of a trader’s D Score. Our goal is to maximise the correlation between a strategy’s current D Score and future returns: our success will empower traders with a high D Score to investor capital!
For now, we offer users a predictive tool of immense potential: the evolution of D Score. Please remember that the D Score is driven by performance and skill: expert traders must prove both to be worthy of investors’ capital.
Distribution of trades:
This chart is useful to know at a glance what kind of strategy a trader uses: frequency of trades, assets traded, duration of trades and simultaneous trades.
It evidences whenever a trader has changed his strategy and is also helpful to find out whether a trader is disciplined when following a strategy.
The trading strategy below shows a good discipline. Note how this trader started trading short trades and kept the number of open trades at a time consistent. Note also how his strategy changed: he increased the number of trades open at a time, being the duration of the trades longer.
In contrast to the disciplined strategy above, the strategy below shows no discipline at all. The number of open trades at a time varies constantly and the duration of the trades varies as well…you can tell at a glance there is no defined pattern.
Do you have any question about the Trading Journal? Feel free to e-mail firstname.lastname@example.org, we’d love to improve on the above intro.