Overall performance

A second positive month, despite being underwater for much of the time! This time though, drawdown was less of a concern, being limited to only about 4%.

The early part of the month was dominated by continued pressure on the USD, although much of this was later reversed following the G7 meeting. Relative volatility remained extremely high throughout the period, with one exceptional day seeing a number of pairs moving up to 4%. Truly scary stuff! Certainly, not my kind of markets, but I’m encouraged that I ended up a little better than even.

Some philosophy ….

In many respects there are two approaches to trading, although of course most traders will use a combination of both in some way or other. One is predictive and the other is reactive. Taking reactive first; by this I mean that the traders methodology revolves around trying to establish what is happening now, and then trade accordingly. Right now, the markets are seeing large daily movements, and the USD remains under continued pressure. Trend followers, or those who have adopted trend following methods in recent times should be doing fairly well right now. Reactive traders believe that when this phase completes, they will be able to react accordingly and change their style of trading to suit the new market conditions. At the other of the spectrum are predictive traders. By this I mean that they trade in such a way as to say that they expect the market to behave in such and such a way, in the future, regardless of what it’s doing now, and trade accordingly. This could be the result of historical testing, technical analysis (ie support and resistance trading) or a fundamentalist view point (it might even be the result of pure arrogance, but we’ll not go into that! ;-> ). The point I’m making is that predictive traders trade the way they do, because they feel that overall probability is working in their favour, even if they run the risk of appearing out of sync on occasions.

Both approaches have advantages and drawbacks. By definition, the reactive trader is always in a little late and out late; he therefore runs the risk of being whipsawed to death. However if each perceived market phase lasts for a long enough time, and ends with clear indications this can be a great approach. Conversely the predictive trader is right there when the market is doing what they think it should, but it can be a painful experience when it is not.

The above is a long-winded way of setting the stage to say that I’m primarily predictive in trading terms, and reactive in money management terms. I’m predictive in the sense that through backtesting I have a view on how markets work over the long haul. Very strong trends like the ones we’ve seen recently are, in my experience the exception rather than the rule. Hopefully sound money management will satisfy the reactive part of the equation, by reducing exposure if things are not working.

At times like these I am more than happy with modest gains, or even just breaking even. If I can survive the ‘bad times’, I hope to be well set for the good.

Individual components

The following charts again show individual equity curves in percentage terms of the various trading components traded throughout the period. The charts are from the beginning of reporting, or inception, with this month's performance commencing from the vertical line.

As I commented last month GBP/USD usually is the main stay of my trading, because of very consistent backtesting results, past trading and encouraging simulations. However this month has still been a struggle. The slightly frustrating thing is that my ongoing simulation in GBP/USD did quite well during the period – up some 30% (see below). The main difference is simply one of timing. The simulation accounts are traded about an hour later each day than the real accounts.


Those with an astute eye or memory might notice that last months profit has changed from 60% - 80%. Basically I’d miscalculated the effect of a funds transfer last month, and this is the correction. Following last months success I opened a second very high volatility (VHV) account at the beginning of the month, which has started off nicely by making some 40%. My other VHV account had one very bad day, and has yet to fully recover. Still these are highly speculative accounts, which as explained last time are initially risking very small amounts. My main AUD/NZD account had a couple of bad days, but still ended up in positive territory by about 18%.

I’m still not convinced about this pair (EUD/AUD), and think I will drop it from my trading portfolio. As mentioned last time, I don’t have good backtesting results on this pair, and have been trading it more as a real-time experiment, than anything else. This is not my normal style, although it must be said that this isn’t a large account.
GBP/CHF - what a dream run! Not one single losing day all month! This pair has given me superb backtesting results over many years, and consequently deserves perseverance even after a disappointing start. In fact I opened a second, small but more speculative account during the month, and that too has started off promisingly. However it must be noted that all these VHV accounts have been initially funded with extremely small amounts, and are really of no consequence unless they start to make significant returns.
USD/CHF seems to have stabilized during the course of the month, giving a useful profit.
This chart inadvertently got omitted last month. I’ve been trading a subset of about 7 currency pairs from a list of 12. The subset is changed monthly to try to trade the most profitable pairs. So far it looks like I’ve got it wrong two months in succession! The perils of reaction rather than prediction! At least when your timing is wrong!
Capital allocation as the end of the period showing increased exposure to AUD/NZD and GBP/CHF and a reduction in GBP/USD. Cash reserves also increased during the period; in part due to dropping Long Term Trend Following from live trading.

Under simulation

Shown here are a few of the methods I currently have in simulation. Although GBP/USD has been disappointing in live trading over last few of months, over a slightly longer timeframe (about 7 months), the results are more than acceptable. Likewise performance in AUD/NZD over the last 4 months is also very encouraging. Maybe when the USD finds it’s own level again both USD Spreads and GBP/USD will produce improved results. Only time will tell.


Last month I dropped ‘Long term trend following’ from live trading, but continue to monitor it in simulation. Although it continues to produce good profits, I would still be uncomfortable trading it live. At some point, I’m sure this run on the USD will turn around with vengeance. I don’t want to be locked into what is basically a nine-month revolving position when it does.
Finally, I’ve added two new simulations that are very much contrary to the way I trade. Hopefully these will do terribly over time! If not, I’ll have to find a way of incorporating them into normal trading.

Comparison with a speculative Oz Stocks portfolio (Australian resources)

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