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There is a lot of talk about the drawdown that may occur with C4 (CheckGrid poses drawdown issues as well, but nobody seems very interested in that excellent EA - too bad).
I am not exactly sure how to calculate historical draw down for C4. But since I have nothing else to do but spend my nights trying to understand trading, I took a stab at what I thought might give me some insight.
I took weekly data for the past 52 weeks on GBPJPY and CHFJPY. I calculated the weekly range for each pair and then compared the weekly range point difference for both. Long for GBPJPY and Short for CHFJPY. Weekly Range = Close - Open; Weekly Range Point Difference = Weekly Range for GBPJPY - Weekly Range for CHFJPY. (I'm not sure if this is the right way to do it and would certainly like to hear if someone has a different view.)
Anyway, the results ranged from a run-up of 630 pips for the week ending 1/5/07 to a draw down of 903 pips for the week ending 8/10/07. The average run-up/draw-down over the 52 weeks was .17 pips.
The results do not take into consideration that you might not have entered the trade at the week's open and may not have closed the trade at the close of the week.
Assuming this is the correct way to do it, the results would probably be more useful calculated on a daily time period.
I've been trading the demo for several months and it seems to me the daily draw down has never exceeded approximately 300 pips.
My purpose here was to try to figure out how much money I would likely need in my account to use C4 to earn roll over interest and benefit from occasional profit taking with this robot without having my account shut down by a margin call.
Seems to me that with $1,000 or so you could have traded 2 10k lots over the last year, earned the daily rollover, and made some additional profit with the Take Profit function.
Am I wrong, Muddy Guy? Where would you like the beer sent. You deserve a couple of six packs, at the very least. Am I wrong fellow thread followers?
Good morning,
First - we are talking about swap trading here. This is not correlation trading. Is everybody clear on that?
Second - the carry trade (swap trading) is not dead, contrary to popular news items in the past two months. In fact, it can be a solid strategy when use correctly. Many people got wiped out in their carry trades this year as prices moved significantly against them. Why did they lose money? One word - greed. They were too heavily leveraged in a market at historic highs and overripe for a substantial correction. Did any broker stop paying the daily swap? No. They paid every day. In fact, those who entered carry trades back when the USDJPY was in the 90's never broke a sweat during this last year.
So, the first thing that can hurt a swap trader is higher leverage. What is the second and only other thing that can hurt a swap trader? A reduction in the interest rate differential. That happens slowly, but if the trader is mired in a drawdown and the swap goes away, it is a slow financial death.
Two approaches to swap trading are to take a position and just sit on it, or to average in over time. I prefer the second. For example, if you put 10% of your account into the trade, then as $100 is earned in swap, you open new positions for 10% of that ($10). This creates a smoothing effect on the value swings. Interestingly, it also seems to create the same effect on the correlation factor.
It may also be a good idea to trade a basket of sorts with several currencies. My C4 robot can handle this. It is not always a good idea to be heavily exposed to one currency, such as the JPY.
So, to finally answer your question about exposure, one way to analyze historic divergence is to simply take the price of both pairs at a starting point and and ending point and do the math. For example, assume the GBPJPY is up 100 pips this year and CHFJPY is up 50 pips. If you are GBPJPY long and CHFJPY short your differential is a positive 50 pips. This is what I call correlation drift analysis. Drift is a function of long term fundamental strengths of the currencies involved.
Another important factor is spike analysis. You will find in my August posts that I described a negative spike in pairs I was trading and my feelings for British cows.
Looking at the previous example - what if one fine day the GBPJPY suddenly spiked down/back up 2000 pips without an offsetting move in the CHFJPY? Your transient differential is a negative 2000 pips. If you are leveraged too high, this will wipe you out, even if it "goes back" to where it should be.
So when you analyze a historic time period for the purpose of testing maximum drawdown, be sure to look for transient spikes, and calculate the differential at those points.
Could you reflect how you would be reacting to this recent two month "change of character" that this wonderful Forex market is handing us?
Would you simply just stop trading live and pause (while watching the correlations in Demo mode)? or would you continue without adjusting your methodology? How long would you remain 20...30...40...strings of losses...with an occasional win...? Just curious...
I am curious about you and not Bill Young as you have nothing to do with his trading, other than the tools he uses that you have written. (I can imagine that the losses would have been far greater if it were not for Bill Y's experience and strict adherance to stops)
ES
Last edited by ElectricSavant; 11-03-2007 at 05:45 PM.
You can understand my reason for concern, considering this observation below:
That all said, correlation trading has been more challenging these last two months as I have seen a periodic complete breakdown in the EURUSD/USDCHF correlation, as well as every other one I track. Check out the attached chart to see what I mean. EURUSD/USDCHF is historically strongly negatively correlated (-1) yet I have watched it go completely random (0) and even close to a strong positive correlation at times. This always happens to some degree, but it has happened far more often recently, and sustained the counter-historical correlation longer.
Could you reflect how you would be reacting to this recent two month "change of character" that this wonderful Forex market is handing us?
Would you simply just stop trading live and pause (while watching the correlations in Demo mode)? or would you continue without adjusting your methodology? How long would you remain 20...30...40...strings of losses...with an occasional win...? Just curious...
I am curious about you and not Bill Young as you have nothing to do with his trading, other than the tools he uses that you have written. (I can imagine that the losses would have been far greater if it were not for Bill Y's experience and strict adherance to stops)
ES
Yes, there has been a change of character in the market. One professional I follow commented on it in the first couple lines of a post last week.
Obviously, there is lots of frustration going around. My personal pet conspiracy theory is that the larger players are taking a more active role in shifting the market around (random spikes) in order to recover losses sustained when their computer trading models failed catastrophically in August. I think this began when Bernake "leaked" the contents of his letter to the US Senate in the last couple days of August. To me, that looked a lot like a "planned" spike which, if the larger players had foreknowledge, would have given them their first opportunity to recoup losses before month end reporting. Would Bernake do something like that as damage control to help the banks reduce their losses and thereby shore up public confidence without direct Fed intervention? Nah... I must be crazy...
How I react, is to sit back and let the market tell me what it is doing. Right now it has a bad case of Parkinson's and Alzheimer's combined. It shakes, twitches, can't remember where it has been and has no idea where it is going...
I also pull back and write more tools. I've been working on a "spike" tool that will alert me to this kind of market whipsaw behavior. I don't like it yet, so I will work more on it. I also go back to development on robots like the Hammer, as well as explore new ideas. Some are frustratingly good, provided that one is skilled or lucky enough. I have neither enough skill or luck, and I need long term success.
Counter-intuitively, GoFX would probably have had a very good month in October if he had widened his stops and taken more drawdown risk. He has had many trades that spike against him, hit his stops, turn back around and move in the desired direction. There is nothing more frustrating than being correct about the market direction, and yet still take a loss. This is especially true for someone who is trading publicly and Monday morning quarterbacks tell him what he should have done. Most people have the liberty of trading privately and just brag about their wins and are quiet about their losses.
But, I said probably. Widening the stops is like playing Russian roulette. With wider stops five times out of six the market would have come back and GoFX would have taken profits. But all it takes is that one trade when the market does not come back - the round is chambered, the trigger is pulled and BLAM, an account gets its brains blown out all over the place.
I have requested to close my managed account at PFG as there seems to be no let up in sight for the character of the market to return favorably to the GoFxPro trading method.
Thank you for the opportunity and thank you for this thread.
Perhaps now that I close my account the performance can return to its published profitability
I lost 14.21% ($1,421,60) from my invested capital in a very short period of time (3.5 months) and the dismal string of losses continue and the trader seems to not vary his trading style and continues to churn the account daily.
ES
Last edited by ElectricSavant; 11-13-2007 at 01:59 AM.
I have requested to close my managed account at PFG as there seems to be no let up in sight for the character of the market to return favorably to the GoFxPro trading method.
Thank you for the opportunity and thank you for this thread.
Perhaps now that I close my account the performance can return to its published profitability
I lost 14.21% ($1,421,60) from my invested capital in a very short period of time (3.5 months) and the dismal string of losses continue and the trader seems to not vary his trading style and continues to churn the account daily.
ES
Hi ES - Unfortunately, my own exact experience. My 10k started August 2. I think it was, nice initial profit but now gone well south. I cannot understand the rigidity that perseveres from a professional trader. If it is not working, you don't do it. Switch to another strategy that better suits the market - immediately. The age old expression is : If you don't change what you do, you will not change what you get. Maybe the problem is in our being "subscribed" to one portfolio technique. If all his portfolio techniques were performing the same he could not stay in business. I would have to argue however that ANY portfolio needs a whole bunch of techniques to fit the character of the market as it changes - no matter what those changes are. There are plenty of traders making lots of profit - of course - otherwise there would be no market. Now I am finding PFG are very slow re closing my account. Requested 12 days ago - no meaningful response yet.
Altos.
Unfortunately I didn't stop my GoFXPro account soon enough, lost 37% in 2 Months starting the last few days of October and finished today. More fool me for not withdrawing the funds sooner, it shows that you can't always put faith in past performance, eek!
I have developed what may be a reliable leading indicator of market change. This grid robot anticipates a change in the market and self-adjust its settings to match market conditions, which should minimize any huge losses common with grid robots deployed in the wrong market conditions. I will keep you all posted.
Unfortunately I didn't stop my GoFXPro account soon enough, lost 37% in 2 Months starting the last few days of October and finished today. More fool me for not withdrawing the funds sooner, it shows that you can't always put faith in past performance, eek!
I'm not bitter, grrr!
Cal
Over a month after asking for the account to be closed and funds tramsferred, I still have'nt received them. Does anyone have any advice where to go from here if the funds don't arrive in the next few days? Any advice on the next step to try and reclaim my money?
Linear Mode
