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Trading Strategy Analysis using Darwinex’s Investible Attributes

The last post showed how to create a free user account to use Darwinex’s Investible Attributes for Trading Strategy Analysis. Before diving into this further, it’s vital that you know the basics to allow you to get the most from these tools. 

Firstly, you need to create a free basic account and link your existing trading account from your current broker. To Link your trading account, you can follow this guide.

Once you’ve completed a few simple steps, you’ll be able to analyse the linked account within 24-48 hours

Next, you’ll need to familiarise yourself with what each of the Investable Attributes cover. We’ll be covering these in detail, so keep your eyes on social media for updates. 

Should you decide that you want to compete for a share of Darwinex’s Prop allowance called DarwinIA, you’ll need to create a funded account with Darwinex.

Darwinex invests up to €45 million every year in the top 120 traders. Darwinex announces new allocations monthly, and the allocation is for six months.

As an example, NWO currently has €462,000 of DarwinIA capital allocated to it. 

This allocation is only available to Darwinex clients who have created a DARWIN. A further benefit of having a DARWIN is commission rebates. If your DARWIN achieves a 60+ D-Score at month-end, you’ll get a 40% reduction in commissions on ALL trading accounts. 

Back to the Trading Strategy Analysis

Deciding on the best entry and exit times is often an overlooked variable. If you use Trading Indicators, it’s hard to know if an earlier or later entry or exit would improve performance. 

Darwinexs’ Open Strategy/Close Strategy Investible Attributes have you covered. The (Os/Cs) IAs run a what-if scenario on each trade. What would the trade outcome be if I entered/exited earlier or later? 

I run a strategy that uses overbought/sold signals from a MACD; timing adjustment won’t help me. 

True, you can’t directly adjust your timing to an earlier entry. But you can Investigate other parameters within the indicator to see if changing the variables in line with earlier or later entries provides any benefit. If it appears your entering too early, you could delay entry after the signal is received. 

The (Os/Cs) IA excels in analysing time-based strategies entries, such as exploiting seasonality effects.

Let’s run a hypothetical scenario. 

The hypothesis of this strategy looks to open a momentum trade on EURUSD at London open and close at London close. If at 8 am Price is above the 20 SMA on the hourly chart, it goes long. If it is below, it goes short. The trade closes at 4:30 pm. 

In this scenario, the (Os/Cs) IA will rank the quality of entry/exit compared to simulated alternatives. The trade duration is 510 mins (8.5 hours x 60 mins).

The simulation runs ten alternatives in 10% increments of the trade duration (51 mins) from -50% to 50% on both the open and close time. 

So in this example, 7:09, 6:18, etc.

This simulation allows you to clearly and quickly see if your entry/exit times are optimum. You could monitor this monthly and try to forecast changes in the market, allowing you to adjust accordingly.

Alternatively, you could use this information to adjust entries and exits.

The purpose of using the Investible Attributes for Trading Strategy Analysis is to provide you with different levels of easily accessible and digestible trading information to allow you to make informed trading decisions

Whether you use these metrics to inform trading decisions or just use them as a filter to priorities your research effort. They’re available to you should you choose to use them. 

Brought to you by Darwinex: UK FCA Regulated Broker, Asset Manager & Trader Exchange where Traders can legally attract Investor Capital and charge Performance Fees.

Risk disclosure:
https://www.darwinex.com/legal/risk-disclaimer


Content Disclaimer: The contents of this video (and all other videos by the presenter) are for educational purposes only, and are not to be construed as financial and/or investment advice.

Free Algo Trading Review

Trading Strategy Analysis using Darwinex & Van Tharp’s R-Multiples

Who is Van Tharp?

Van Tharp is a Dr of psychology and has long been considered one of the leading minds regarding trading psychology, focusing on the use of NLP.

Van Tharp developed the R-Value/Multiples concept back in the ’90s and it featured in his 1998 book ‘Trade your way to Financial Freedom’.

Although the original book is over 20 years old, the concepts Van Tharp discusses are as relevant today as they were upon its initial release.

What does R mean?

R = Risk. The R-Value model is linked to the value of the risk of each trade. Regardless of position size, the SL will always be -1R. The R-Value of each trade is a multiple of the max risk of the trade.

Let’s explain further.

You place a long entry on EURUSD at 1.1900. The SL goes at 1.1850. In this case, the distance between the entry and the SL, 50 pips, equals -1R. If you instead place the SL at 1.1800, some 100 pips away from the entry, this still equals -1R.

Notice that this calculation is done regardless of position size. It’s important to note here that you should always consider the rules that govern the placement of an SL during the strategy development process.

These rules allow for consistency between trade and risk evaluation and improve the robustness of your optimisation process.

So with the R calculated, you can then calculate the position size. Using the above two SL placements in this example.

If you want each trade to carry the same risk on the equity, you would need to make the trade with a 100 pip SL half that of the trade with the 50 pip SL. Each trade would then carry the same risk on the account. If you’re not familiar with pips and lot sizing, you can read more about them here.

Now that each trade carries the same risk, usually around the 1% mark, this is up to you, however. With each trade now having the same risk, any returns generated can be easily compared and quantified.

So what would the R of a positive trade be?

Suppose the trade has a 50 pip SL and hits a TP of 100 pips the R=2. To calculate the R, you simply divide the positive return by the size of the risk, in this case, 100/50=2R.

If the trade with a 100 pip SL hits a TP at 100 pips, the R of this trade would only be 1R despite moving an equal distance (remember, a pip is only a measure of the distance of price).

By calculating these values in this manner, you significantly improve the statistical significance of your optimisation processes by comparing strategies using an equal risk approach.

By doing this, you can compare a system that trades on the 5min timeframe with a strategy on the daily timeframe. The 5min strategy may have a five pip SL, whereas the daily may have a 100 pip SL. By measuring each trade in R-Multiples, you can accurately compare the two.

Warning

When analysing any set of data, you need to consider the size of your data set. Using a small number of trades in a backtest to base a trading decision on is reckless. You should give serious consideration to the number of trades used. Think thousands over tens.

Investible Attributes

Darwinex created 12 Investible Attributes to help traders and investors alike analyse the trading data of Darwins. One pair of Investible Attributes that are beneficial to visualise what R-Multiples can look like in a live account and what benefit you can gain from them is the R+/R- IA.

Under the Investible Attributes tab, you can see all the investible attributes for each Darwin. In the middle, you can see the R+/R- IA. The R+/R- IA shows the returns distribution in pips.

If on the left, on the negative return side, most trades are clustered around the same negative value; this can indicate that the trading account uses the same size SL for all trades.

You can then quickly eye the average positive return distribution and get a sense of the average R-Multiple of the Darwin.

Do you use Darwinex’s Investible Attributes to help inform trading decisions? We’d love to hear how. Get in touch on Twitter @Darwinexchange

Brought to you by Darwinex: UK FCA Regulated Broker, Asset Manager & Trader Exchange where Traders can legally attract Investor Capital and charge Performance Fees.

Risk disclosure:
https://www.darwinex.com/legal/risk-disclaimer


Content Disclaimer: The contents of this video (and all other videos by the presenter) are for educational purposes only, and are not to be construed as financial and/or investment advice.