We had the pleasure to interview Javier Colón. He is one of Darwinex’s three founders but this time we spoke to Javier the trader, which he also is.
His DARWIN ULI‘s track record starts in June 2016 and is a threefold DarwinIA winner until now (June, September and December 2018).
Javier, we know you’re a Darwinex co-founder but we hardly know anything about your story as a trader. How did it begin and how long have you been trading for?
I’ve been trading since I was 18. I started with stocks and I knew very soon that that there was no going back for me.
At 29 I embraced trading as a profession, full-time, trading currencies and futures until, at 32, I came up with the idea of founding Darwinex because I thought that there must be more traders like me.
My dream is that anyone with a real passion for trading gets the opportunity to make a living out of it, independently from their background. If Darwinex persists, I shall have fulfilled my dream.
Why do you trade manually?
I know it’s possible to earn money with automated strategies but I’ve also seen many of them go bust after 1-2 years of doing it very well.
The market changes a lot and with automated strategies it’s more complicated to adapt to the changes, at least it is for me. This is why I prefer to trade manually, it gives me a sense of control.
I believe that the intuition you develop throughout the years is an asset you can use in certain moments in the market.
Looking at the strategy underlying ULI, how can a manual trader trade 41 assets 11-14 times a day on average?
I indeed make a lot of trades but my trading decisions are not so many. I enter the market always on the pairs on which I’ve previously identified a movement on daily or weekly graphs. I cannot trade lower timeframes due to my work.
I study the graphs at night setting up the pairs that are close to giving a signal. If they end up giving a signal (one or two assets per week), I enter the market with 6-8 long-term trades, splitting the entry, and then during the day – I always have the MT4 terminal open on one of my screens – I try to harvest a few pips on the same asset from intraday movements, in this case in both directions.
For example, if I have a weekly signal to go long on an asset, but the 4H graph breaks out in the opposite direction, I enter with trades in the opposite direction. If it reaches a support and bounces, I enter in the direction of the trend to get an additional 10 pips per trade or even less.
ULI’s profitability depends 80% from the long-term trades and 20% from short-term trades. If I’m proved wrong with the short-term trades, it doesn’t affect me too much, so I can combine that with my daily work.
ULI’s drawdowns are the result of adverse movements of more than 1.000 pips, i.e. I don’t mind if a news release is adverse to my trades, I always have margin for reaction.
The DARWIN suffers when weekly signals are contrarian to daily ones. In these cases I stuggle managing the trades which is the reason for abrupt drawdowns with sudden upward twists (like the last one I had).
On the other hand, I also split the trades a lot in order to increase capacity. Should AuM in ULI increase in the future, I have a lot of margin to increase its capacity.
The attribute with the worst grade for ULI is, by far, Open Strategy. Do you have any explanation for this?
This is something I’ve observed about my trading since the beginning. I’ve a lousy timing when entering trades. No only because the attribute says so, I’ve always observed that myself as well. It’s probably the result of me being impatient, it’s not my main virtue.
Notwithstanding, the strategy has given me good results and I don’t plan to change anything.
You trade with a monthly VaR of 40%. How do you mentally bear such risk? Do you plan to descrease your strategy’s VaR in the future?
Mentally I don’t think about risk in percentages but in monetary value. I started with 500 euros on the account, the strategy was new to me and I wanted to test it.
Until then, I was trading the same indicators but on 4-hour-candles and I wanted to see how to adapt the strategy to higher timeframe candles. As I had no idea whether it would work or not, I preferred to risk only a small amount.
Right after starting, I suffered a considerable drawdown which made me increase VaR as a result of not calibrating well the lot size. Since then I try to reduce it one step at a time.
The problem with my VaR gets palpable when it comes to Darwinex managing ULI’s risk.
With such a VaR, it’s important to adjust lot size to equity. As my equity varies a lot, above all during drawdowns, it’s important to decrease lot size. This happened during my last drawdown. I went long on the GBPAUD with a weekly entry, with 5.000 euros on the account and 0.7 lots. At the end of the drawdown – 1.000 nominal pips of a drawdown – I got left 1.500 euros and only 0.2 lots long. Despite this, the market ended up turning around and during the upwards curve I went increasing the lot size again until recovering the 5.000 euros. This is something that I’m struggling with a lot, which is why I’ll keep trying to decrease my VaR.
Moreover, there’s no sense in trading with such a high VaR having the option to invest in your own DARWIN and managing risk through this investment. There were moments that I had 100k invested in my DARWIN when I saw that my strategy was going to turn upward. With the investment in the DARWIN I can also overcome the shortcomings in my timing on weekly entries.
What happened from the middle of October 2018 onward with your Loss Aversion grade? It plummeted from over 8 to 2.
This is something that happens with weekly entries when the market goes in an advarse direction virulently. While in drawdown, the inferior candle of the chart penalizes you and it won’t recover when you don’t demonstrate being able to maintain the position when the market finally turns around. This is how it happened and my Loss Aversion grade got a lot better since then.
What’s really important is to adjust lot size during drawdown. Instead of accumulating trades like less experimented traders do, what one needs to do is reducing them. This way the market never kicks you out from a correct direction. When you do long-term trading with high risk and want to survive, there’s no other way to do it.
Many people, looking at the DARWIN think that it’s a martingale, when it does just the opposite. If it was a martingale, the VaR wouldn’t be so stable.
In the trading journal I appear to increase the number of trades during drawdowns. This is because I open hedging traders in the opposite direction. I like to do it this way in order to see the result of the hedging in real time. This way I know whether the decision to hedge was correct or not and can also quantify it.
Thank you for the interview, Javier!
Any specific questions you would like to ask Javier? Leave them as comments and we’ll try to get you the answer!