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Benefits of Portfolio Diversification

Importance of Trading Consistency using Investible Attributes with Darwinex

In the previous post on trading consistency, the focus was on the consistency of returns. A strategy with the same fixed take-profit and stop-loss levels will generally have a high returns consistency.

However, not all strategies follow these fixed take-profit and stop-loss levels. Seasonality strategies, for instance, usually have time-based entries and exits. The entries and exits will be at the same time of day, or week, or month. Similarly, the exit criteria will usually be at a specified time.

A strategy that opens a trade at London Open and closes the trade at London Close is an excellent example of a seasonality trade. Now, this strategy trades in a consistent manner, but the returns will have a higher variation than a strategy that uses a fixed TP/SL.

Does this mean that a lower returns consistency means a lower trading consistency?

Not at all; it just means another way of measuring it is needed. For this reason, Darwinex created the Duration consistency (Dc) Investible Attribute. The (Dc) IA measures the consistency of when a trade is closed based on using time as a factor, not the returns.

With this in mind, it’s reasonable to assume that a DARWIN with a high (Dc) score may not have a high (R+/R-) score. As an investor, you can use this knowledge to provide clues on how the underlying strategy may operate.

Of course, the underlying system may have multiple components, in which case it may have high or low scores in both Investible Attributes. The key take-home point here is that you have tools at your disposal to help you make informed choices.

As traders and investors, that’s all you can do. Make the best decisions you can with a suitable amount of information and data.

If you need further insight on Darwinexs’ Investible Attributes, don’t hesitate to reach out to us at info@darwinex.com and we’ll be happy to help.

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.

Loss Aversion

Trading Consistency, Intellectual property and Investor considerations

Trading consistency is another subject that is often not given the attention it deserves. Too often, traders focus on things like risk, return, and optimising parameters. Whilst these components are essential, trading in a consistent manner is important too. 

From an investors perspective, trading consistency can help to smooth the emotional rollercoaster. Traders will often want to protect their intellectual property and with good reason.

It may be easy to identify the trading strategy variables if there aren’t many of them—for instance, a time-based strategy with no filters. Investors may then be able to operate the strategy themselves, circumventing the need to pay the creator any performance fees. 

The ability to provide various levels of intellectual property protection is yet another benefit of the Darwinex platform. It allows the trader to implement privacy features preventing anyone from taking their intellectual property.

A downside of doing this is that the investor can lose valuable details about how the trading strategy operates. Investors like to know what is going on. By not having relevant information it can lead the investor to invest less than initially intended.

Another possibility is that the investor may make rash decisions whilst investing, leading to unnecessary losses. It is clear that the trader must strike a balance between informing investors and protecting their ideas. 

However, if when reviewing a traders history, the investor can see a consistent manner in the operation of trades; this can provide the investor with confidence that the trader isn’t making rash decisions.

As a trader, when designing a strategy, taking trading consistency into account can make it easier to highlight rogue trades and thus increase the robustness of your system. 

In trading, surprises are not a good thing.  

Darwinex created the Investable Attributes to measure different aspects of a trading strategy. This ability is of benefit to both traders and investors.

The Positive and Negative return consistency Investible attributes (R+/R-) offer valuable insight into the consistency of a traders trading decisions. A high score in these investible attributes is a good indication of the trading consistency of a trading strategy. 

The accompanying video goes into great detail using this valuable metric both as an investor and a trader. 

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.