Currency Basket and Carry Trading

Quoting sjburdi

Disliked

I am glad you started this new thread. For the 10 pair, how do you come up with 25-30 %. I am averaging close to 80% on interest alone, assuming DD is contained. The 33 pair basket is not paying that well but DD trends need to be evaluated. I am interested in seeing BOBMM's backtesting results of similar baskets.

Ignored

Quoting SamDan

Disliked

http://www.mataf.net/en/analysis-correlation.htm

Sam

Ignored

Quoting fijitrader

Disliked

The above site is clearly a commerical site. I this you site or do you have any affiliation of any kind with this site?

FT

Ignored

Quoting sjburdi

Disliked

I am glad you started this new thread. For the 10 pair, how do you come up with 25-30 %. I am averaging close to 80% on interest alone, assuming DD is contained. The 33 pair basket is not paying that well but DD trends need to be evaluated. I am interested in seeing BOBMM's backtesting results of similar baskets.

Ignored

Quoting BobMM

Disliked

SamDan,

Did you look at my attachments at all? Your post indicates you may have missed some crucial elements.... number one being the main point I was trying to make.

I have to disagree about the apples to oranges comparison. Perhaps it was this attitude that turned you off anything valuabe I had to add to your approach. To use your analogy, regardless of whether you grow apples or oranges, some general knowledge about farming will help us both. I humbly submit that my previous attachments help both apple and orange growers.

My purpose is to set up a basket of currencies that will earn daily interest while facing no more than 10% DD.

Let's clarify a point - by drawdown do you really mean drawdown, or do you really mean volatility? Ie, do you want a directionless basket that has volatility less than 10%, or do you desire to appreicate your basket? They are vastly different things, and your language suggests this next point:
Your stated purpose of facing a drawdown of no more than 10% can be done with any basket or any one pair for that matter... simply depends on how much leverage you use. I guarantee trading 1 unit of the most volatile pair you can find you'd still end up never approaching 10% DD of your account before you died of old age. Of course, even on an interest positive pair you wouldn't earn much interest in relative terms trading that tiny size, but it my point is this: you seem to not understand chaffcombe and my approach of appreciation, and I think it's an important point to get....

He states the his basket was/is up 500-600% which is fantastic, hes also experienced DD's of 50% which is not something I'm comfortable with. He also trades in his basket almost daily which is also not my objecti!
Follow me on this one... if you want a drawdown of no more than 10%, why not simply trade 1/5 or less of his size? Wham, instant 10% drawdown. You make a point similiar to mine though, you don't want to trade daily.... if you looked at my attachments you'll notice I have a way to trade a basket that produces a profit factor (% gain/DD) slightly higher than chaffcombe with trades done once or twice every few months.

His is more of an active basket because hes going after a fixed percentage of the highest yielding currrencies in hopes that their high yield will cause them to appreciate in price if I'm understanding his method. I

No to the first part, yes to the 2nd. Our idea is to go for the highest yield currencies in hopes that their higher yield will cause capital to flow from the lower interest currencies to the higher paying ones. However, to do this one must neither be trading actively or using a fixed percentage. See my attachments for great proof of both of these points.

I on the other hand am holding several pairs which is balanced in a way that exposure to the most volatile pairs is near neutral while still being long pairs that pay high interest. I'm not counting on price appreciation as much as interest appreciation.

Ok, now I'm understanding you a bit more, you did mispeak earlier, you meant you were avoiding price movement in either direction and hope to make interest on a relatively fixed price asset. In this case, you can still gleam some nice insights from my graphs showing different entry points, as even on a directionless basket, as long as there is volatility the profits from said entry systems will differ greatly. But answer me this, if you're willing to tolerate a 10% drawdown, why not have price appreciation of your basket as well with the interest, all other things being equal?

There may be a hundred ways to do carry trades, but we all have to face the question of when to buy and sell the basket, and I hope you take the time to look at my graphs and try to learn a little, or rebut me and put me in my place! I am still learning too, and welcome all comments. Let's keep this civil and help each other out.

-Aksel

Ignored

Quoting BobMM

Disliked

SamDan,



1. Yes I did see your attachments, the graphs are quite nice to look at and the spreadsheet is an eyeful but I'm not able to determine from them how you trade your basket, what its comprised of or how it differs from mine. If you would describe your method maybe we could start comparing them.

The main purpose of the graph is to showcase the difference in profitability vs DD of the different ways of trading the same basket.

Buy and Hold is just that - buying and holding the basket, never making any additional purchases or sales.

Fixed % balance keeps your margin used a fixed % of balance. Since balance rises every day from interest, you are continually increasing your margin, regardless of NAV.

Fixed % of NAV is keeping a constant fixed % of NAV as margin. So, at the end of the day, if the basket has gone up, you increase your margin. If the basket has gone down, you sell some of it. This is chaffcombe's approach in a nutshell, and is very profitable, but as you pointed out, lots of work since you have to make a trade every day.

B&H w/ Rallies is Buy and Hold with additional buys on rallies. The idea is to always keep your money invested up to a certain amount of risk. If the price goes down, you don't change your margin used and hope to ride it out on interest. If it goes up, you increase your position. Essentially, only buying on rallies.

B&H w/ Periodic is buy and hold the initial basket with additional purchases after some X% gain in your NAV. So ie, if initially you opened a position with, let's say 10% of NAV, and now, the basket + interest has increased your NAV such that the position value represents only 5% of NAV, you buy some more to make it 10% again. kind of a lazy man's investing idea, don't have to check it very often, but better returns than plain buy and hold.

the last one, buy dips, sell rallies, buys when there's a significant price decline and sells when the basket makes a new high. when it sells, it's totally out of the market, explaining the flat lines you see on that graph.


By far the most profitable and efficient approach I've discovered so far is the buy and hold with additional buys on rallies. This keeps the most money invested possible at all times, with roughly the same wipeout risk, which is larger, since you're always buying more as the price is making a new high, and could potentially be buying right at the top of a steep decline. But you're also making lots of interest since you're investing so much, and the interest helps smooth out long drawdown periods in the basket.




2. I don't see the difference between DD and volatility really, the volatility of the pairs in my basket affects my drawdown, but DD of my account is all that matters to me.

I make the distinction because volatility refers to the price action of the basket, which is independent of your actions and trades, and your DD is dependent on your leverage and price you entered the trade.
3. I am in essence, doing exactly what you say when you suggest why not simply trade 1/5 or less of chaffcombes size. If I'm keeping my drawdown within 10% and his sometimes hits 50% is that not what I'm doing? Trading my basket with my method I'm perfectly happy gaining 50% apr with only 10% DD then facing a 50% DD to gain 500%. Increasing my leverage by 5x then would roughly give me 250% return with 50% DD, nice but no thanks.

Well, it is a slightly different approach, since Chaffcome is primarily interested in appreciation of the basket, and wants his basket to have direction.... if you focus solely on the interest as your sole gain, you don't want direction at all, any directional movement in a month can wipe out a years worth of interest. Are you saying you have a basket that makes 50% apr on your NAV in interest while suffering only a 10% DD during that time? a profit factor of 5:1? In your worst year you only make 40%? If so, that's incredible! I'd love to hear how you're managing that. So far, I've found all the positive interest pairs come with a ton of volatility, and I've been able to get a 2.2:1 profit factor at the greatest, which I was pretty proud of, that's 22% gain to 10% drawdown, and that's interest and basket appreciation. I'm very interested to hear your methods.

I hope this clears up the confusion on my graph, dying to hear how you're achieving those returns.

-Aksel

Ignored

Quoting SamDan

Disliked

SJ,

thanks I'd like to keep this going also since so far basket trading is proving to be amazing, dont know what else to say about it I started the 10 pair on Oct 12 and its up 6% so that would work out to be about 40% APR, it must be the multiple factor we are using causing the difference. I'm using .5000 what are you using?

Sam

Ignored