Darwinex is arguably the best place for investors looking to make money from the forex market for a variety of reasons. However, the fact that there are more than 2000 Darwins to choose from means that the selection process is not a cake walk.
This post tells you all you need to know as an investor looking to make money from investing on Darwins in Darwinex. Let us help you avoid the learning curve!
Look Beyond Past Returns
New investors on Darwinex tend to make the mistake of selecting darwins based on the past returns generated. This is the wrong approach to take. Of course, you need darwins that have demonstrated the ability to make money in the past, in the hope that they will continue doing so in future.
However, you need to combine the returns against other investable attributes before making a decision. A look through some of the closed darwins on Darwinex will show you lots of Darwins that had high returns at some point in the past but have now closed.
Choose Your Risk Limit Before You Invest
Just as savvy traders are only willing to allow a certain level of drawdown on a trade before exiting the position, investors on Darwinex need to decide how much money they are ready to lose on a Darwin before investment.
This will ensure that they avoid unnecessary panic during drawdowns. If you have already decided that you are willing to lose 10% of your investment on a darwin, you won’t exit at 5% drawdown unless there are other supporting reasons.
In many cases, darwins from good traders tend to recover from small drawdowns quickly.
Don’t Attach Too Much Importance to Drawdown Numbers
Investors on Darwinex sometimes ignore Darwins that have double digits in the metric “Drawdown since Inception”. This is the wrong approach to take. Look at the drawdown on specific time windows like the 1 year, 6 months and 3 months first before making a decision based on this.
A 3-year-old darwin with a 35% drawdown since inception may not necessarily be a bad one. It could have a drawdown of 10% in the last year and a return of 30%.
If other investable attributes, returns and trading style appeals to you, do not allow drawdown numbers to affect you. A darwin that has recovered from several drawdowns in the past is more trustworthy than another darwin that is yet to suffer a significant drawdown.
Be Realistic with your Expectations
If you are expecting to double your money every year as an investor on Darwinex, you will be disappointed. As a brand, Darwinex emphasises targeting 20% a year and for good reasons. Most good darwins can yield 20% returns for most years.
Some of those darwins like this one, this one and this one will exceed 20% while others can go as high as 90% in some years. However, it is always best to keep your expectations low and then be pleasantly surprised. At 20% a year, that’s more returns than you will get at your local bank.
Don’t Focus on the Most Invested Darwins
An ignored darwin today, can be among the most invested in 6 months. In the same vein, a darwin that is on the “most invested” filter today can drop off in a few months like we have seen over the years on Darwinex. The point is, the darwins with the most crowd of investors are not the holy grail.
However, if you are a complete novice investor, it makes sense to start from there when doing your analysis.
Invest in Darwins that are based on Principles You Agree With
Many good traders know if they are more technical analysis or fundamental analysis inclined. They also know if they like scalping a few pips or holding trades for long. In the same vein, Darwinex investors need to only invest in darwins that they understand and agree with the underlying strategy.
If you don’t like scalpers, then look at Darwins with the Capacity attribute higher than 5. If you don’t like darwins that trade with stop loss distance larger than profit targets (or even without stop loss at all), then stay away from darwins that have a score lower than 5 on the Loss Aversion (LA) attribute.
Some investors might think it makes sense to have a mix of all kinds of darwins, regardless of the underlying styles, for diversification purposes. This might be true to an extent but would you be able to stay calm as an investor in the face of a drawdown when you do not trust what the trader is doing?
Be Wary of Migrated Darwins
Darwinex allows traders to migrate data from other brokers and have the data rated and analysed. Such darwins are distinguished by the line and “migration date” on their return charts. Unfortunately, this means that some traders migrate doctored histories from suspicious brokers.
When this happens, the group of investors that are easily swayed by large past returns quickly rush in to invest in the darwin. More often than not, it either ends in tears, or you have a darwin that is near-permanently stagnant. Other times you have one that bleeds away investor money slowly.
Even with migrated darwins from genuine traders, it is always best to give one full year from the migration date to be sure that the strategy migrated is still the same one in effect. This wait time will also allow you to see how the system adjusts to the Darwinex environment.
If you still want to invest in a newly migrated darwin after reading this, at least use a stop loss.
Be Careful with New Darwins
A new darwin does not always mean that the trader is inexperienced. However, you need to be careful with any investments on it. With a new darwin, you do not know how it will react to adverse market conditions or how it will respond to having some investments.
Waiting for a year at the barest minimum allows you some time to follow its evolution. If the darwin still looks good after a year, you can consider investing. If you must invest in a new darwin immediately, use a stop loss.
Avoid Darwin Farmers
Darwin farmers are usually algo traders that can mass produce automated strategies and then list the ones that performed best in backtests on Darwinex. If those darwins attract investments or win Darwinia allocations, they can make some money. If all of them crash, they produce a new set and try again.
To fish out these types of traders, look at the user name of the trader as shown in the image below.
The image shows that this trader has an extra 15 (!!!) darwins listed. Click on the username to bring up a look at the trader’s darwins as shown below. Don’t forget to click on the tab to show closed darwins.
The case of this particular trader is the best example here because as you can see, he has made over €50,000 from this behaviour while most of the investors would have accumulated losses if they were holding his darwins with a long term view.
If a darwin provider has more than three darwins, that’s a red flag. How can they find time to pay attention to their trading if it is all spent on maintaining multiple strategies?
Traders with single darwins are not the Holy Grail either, but at least they stay committed to one trading account. They are also focused on doing their best to continue making money for investors in the long run instead of hoping to make money following a lucky couple of months!
Know When to Exit
Although it is best to hold a strategy for the long term and avoid quitting prematurely in minor drawdowns, you need to know when to exit. If you sense that a trader has started to take on more risk than usual, adding new pairs or that the strategy has changed in the last few months without any explanations, it is time to exit. This is especially so when these changes are happening at the same time as a drawdown on the darwin.
To find out if a darwin behaviour has changed, visit the underlying strategy tab as shown in the image below.
Pay attention to the D-Leverage and Open Trades sections. If the bars are rising during a drawdown, it is your cue to exit.
Limit Your Portfolio Size
Any portfolio that is holding more than 10 darwins will most likely be a losing one. Find a way to filter your darwin selections and bring them down if you are part of the Darwinex investors that have more than this number in your portfolio.
With your selected 10, you need to monitor them to ensure profitability. For instance, any darwin that falls outside your selection criteria should be replaced. This can be done once a month or quarterly at most.
Becoming one of the profitable Darwinex investors is possible if you know how to select darwins that are performing today and have the potential to deliver tomorrow. The tips covered here contain the knowledge you would have gained by trial and error and of course lost money. Take them seriously!
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You can also check out our recommended Darwins.
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