Proposed Improvements to Genesis Vision’s Level Up System
Skip to “The Proposed Solution” for TLDR. Follow me on Twitter: @CryptoConfucio1
Now that the new Level Up system has been implemented, I would like to discuss some potential considerations that could improve it even further.
Managers on the Genesis Vision platform have a maximum cap on how much money they can manage. The higher the manager’s level, the more assets the manager can manage, and the more the manager could potentially earn through management fees and success fees.
The Current Level Up System
- All of the managers are levelled up only on the first day of each month.
- A manager can go up only one level at a time.
- In order to level-up, you need to end up in the top 10% of investment programs ranked by profit among all of the other competing programs of the same level.
- Profit is calculated as a percentage and is calculated over a certain period. The general rule of thumb is that the period of time is calculated as “managers’ level — 1 month”. For example: if your current level is 4, then the last three months of your trading will be counted.
- All programs that have completed at least one trade participate in the rating.
- Each level needs to have a minimum of ten participators. You can’t level up if the total amount of competitors for the next level is less than ten.
- The higher a manager’s level is — the more funds he can attract.
It’s not all about the Profits.
The point I want to focus on is number 3.
“In order to level-up, you need to end up in the top 10% of investment programs ranked by profit among all of the other competing programs of the same level.”
This is a very straightforward and easy to understand mechanic: the top 10% of the most profitable managers level up. However, I believe that the level up system could be further improved by taking additional factors into account.
My main issue with this mechanic is that it focuses purely on profit. While profit is very important, and it is the final metric that impact’s an investor’s return, I don’t think it should be the only metric to determine if a manager should level up.
Take a look at the picture below. These are the top 10% most profitable managers who made it from Level 2 to Level 3. Yet only 20% of these “top 10% managers” are profitable this past month. By focusing on only profits, the system did not give managers who are slightly less profitable but more sustainable a chance to level up.
One very important factor to consider is the risk. In investing people often say “Risk vs Reward”, and I think it is something important to keep in mind when deciding how managers level up within the platform. Currently, the level up system focuses only on the managers who deliver the highest “Reward” without consideration of how much risk these managers take on.
Consider this:
Manager 1: 25% profit with 3% maximum drawdown
Manager 2: 30% profit with 40% maximum drawdown
Maximum Drawdown (MDD) is calculated by:
Between Manager 1 and Manager 2, who is the better manager? This is not a question with a clear right or wrong answer, because the risk tolerance of investors varies.
Some investors may choose one over the other. But for managed assets, most investors and professional traders would agree that Manager 1 is a better money manager to grow and preserve wealth even though the overall profit is lower. The trading strategies for Manager 1 delivers better “Risk to Reward” and the investors in Manager 1 would certainly sleep better at night.
However, with the current level up system, Manager 2 will have a higher priority to level up than Manager 1. This is where I think some opportunity for improvement exists in the current system. And I think this is why only 20% of level 3 managers are profitable. Such high-risk programs are difficult to sustain profitability over time.
Fortunately, we don’t have to reinvent the wheel, as the platform already conveniently calculates some important metrics for us to determine risk. On the manager’s program page, Profit Factor, Sharpe Ratio, Max Drawdown, and Sortino Ratio is automatically calculated. These ratios can give you different perspectives on how risky a program is. More can be learned about some of these metrics from the “6 Tips on How to Choose the Best Manager”
One great metric that is I think that can be better utilized is profit factor. Profit factor is quite simple to understand. The formula for calculating profit factor is as follows:
Profit Factor = Gross Profits / Gross Losses
(net of fees and commissions)
All else equal, the higher the profit factor, the better.
Consider the Profit Factor…
Here are three key reasons why I believe Profit Factor should be used as a metric in the level up system:
- It takes into account the amount of risk a manager exposes assets to and encourages managers to trade more efficiently.
- It allows investors with lower risk tolerances a chance to invest their funds in a more conservative and consistent manager who otherwise may have gotten stuck in lower levels. This makes the entire Genesis Vision platform more versatile and more suitable for more investors with varying degrees of risk tolerance.
- It would attract more conservative managers to join the system since it provides them an opportunity to level up and compete with riskier managers.
The Proposed Solution
Current Level Up System:
3. In order to level-up, you need to end up in the top 10% of investment programs ranked by profit among all of the other competing programs of the same level.
Proposed Level Up System:
3. Managers may be categorized into Group X or Group Y based on performance. Managers belonging to either group will level up. The number of managers who level up is equal for both Groups.
Group X: All investment programs are ranked by Profit. The top 5% of the most profitable programs are leveled up.
Group Y: The top 20% most profitable programs excluding Group X are selected and ranked by Profit Factor. The highest Profit Factor managers from this list are leveled up. The number of level ups in Group B equals the number of level ups in Group A.
Expected Results
Under my proposed change, the very most profitable programs, the Top 5%, will still level up to the next level. I still want to see the stars to shine! However, by also taking profit factor into account it also rewards managers who trade in a highly efficient manner who optimizes Risk vs Reward for the investor.
The reason I propose that Group Y managers are also ranked by profit first, albeit a much wider margin than Group X, is to prevent managers from trying to cheat the system. Without a top 20% profit requirement, it would be possible for a manager to make a single profitable trade to produce an abnormally high and unsustainable profit factor.
With the proposed changes, not a whole lot will change. And that is not a bad thing, because the current system is highly merit driven! Comparing the incumbent level up mechanics, with the proposed mechanic described above, around 50% to 80% of the managers who level up will remain completely unchanged. However, the new managers that would level up in Group Y would bring an entirely new investment dynamic into the higher levels.
With the incumbent system, some managers who are on the verge of leveling up may feel compelled to make slightly riskier trades to push their overall profit percentage to be higher than the next manager above them. In my opinion, managers who are profitable with a winning strategy should never feel pressured to take on additional risk to generate additional profit that is not native to their trading strategy.
Because some of these behaviors are unsustainable, such as taking a large amount of incremental risk to generate a small amount of marginal profits, we should also see a reduction of what I call “dead or dying” programs. As it currently, stands 40% of level 3 managers fall into this category where profitability has turned negative and trading activity has ceased for over a week.
In my opinion, the biggest impact these proposed changes will have on the platform is that it will signal to the world Genesis Vision not only has highly profitable managers but also highly efficient and consistent managers as well.
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