Mathematics of Diversification
Hi Ubzen,
In my opinion, you can use multi currency with volume of lot calculation based on percentage of Drawdown or based on Annual Return
- Based on Drawdown ( bigger draw down means smaller percentage )
- Based on Annual Return ( bigger Annual Return means bigger percentage )
- Or using both
Symbol $MaxDrawDown % based on Drawdown $Annual_Return % based on Annual Return
- EurUsd $500 9.45 % $1100 13.92%
- AudUsd $300 15.75 % $1000 12.66 %
- GbpUsd $2000 2.36 % $1100 13.92 %
- UsdCad $200 23.62 % $900 11.39 %
- UsdChf $500 9.45 & $900 11.39 %
- UsdJpy $3000 1.57 % $800 10.13 %
- EurChf $150 31.5 % $300 3.8 %
- EurGbp $1000 4.72 % $800 10.13 %
- EurJpy $3000 1.57 % $1000 12.66 %
Very good idea. Adjust my lot-size according to my [fear|greed] or [risk|return]. I'll attempt using draw-down% as a guide for the lot_sizes. Thank You :) Interesting what happens to EurChf. Based on drawdown, it wants me to bet_more. However based on returns, it wants me to bet_less. What do you make of that?
Very good idea. Adjust my lot-size according to my [fear|greed] or [risk|return]. I'll attempt using draw-down% as a guide for the lot_sizes. Thank You :) Interesting what happens to EurChf. Based on drawdown, it wants me to bet_more. However based on returns, it wants me to bet_less. What do you make of that?
Both actually. The Starting Deposit is $10,000 if that helps. I want the default view in $_Dollars because those are the minimum losses it can sustain given my broker's minimum_lot and current money_management.
Those %tages aren't provided by me. EurChf has the lowest_dd in % and the lowest_return in %. biantoro is suggesting that I wager 31.5% on EurChf when basing my decision from a Risk_Adverse [minimize my drawdown] point_of_view. However, from a Risk_Taker [maximize my returns], his money_management suggests that I wager 3.8%. At least thats how I interpreted it.
Its all good. As I suspected, the percentages sums up-to 100%. Therefore, I can break my 10k deposit down into those parts and assign them to the corresponding symbols. Also another way of looking at it would be to Scale them down. Example: EurUsd = 0.09 lots | AudUsd = 0.15 lots | UsdJpy = 0.01 lot | EurChf = 0.31 lots and Etc... Using 0.31 as the base_lot for EurChf is somewhat scary but given the low draw-down this makes sense.
On the other hand, I cannot see why EurChf gets hit so hard because of it's low returns. Its like polar opposites | from biggest size to smallest size.
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Ok, I suck at mathematics. Therefore my question is derived mostly from a numbers angle. However anyone with multi_currency or diversification experience could help.
Lets say my expert advisor looks for $1 take profit when back-testing on single_currency pair. I get results as follows on different pairs after 2012 year back-test. The numbers below are just for this case study and not actual back-test numbers ;)
My biggest question here is, should I trade all the above currency in single_currency mode. Or should I have all currency aim for the $1 profit then close_all?
Other questions.
-Should I only trade UsdCad because it gives me the best Return/Drawdown value?
-Should I exclude the pairs with the biggest drawdowns i.e (jpy) denominated pairs?
*Note, I want to trade as many pairs as possible because I believe they all have positive expectations. However, some seem to have more risk than others. Also, by having all target the same goal, I feel like I'm paying too much spreads for the buck. Help.