OK, so you think you’ve got a great strategy and it works great, you’re raking in the cash and life is looking up. Then something big happens and you go into a big drawdown waiting for the mean reversion.
That’s what happened yesterday/last night for me, the aussie dollar falling like a rock was that something big and it sent me into a big drawdown, the worst I saw was around 10% on my live account and something stupid on my ATC account. My live account recovered ok and this morning it was only down to a 1.5% drawdown so I took that… The ATC entry? Well that got hammered!
I had a think about some possible filters to add to my strategy, firstly I think I need to look at longer term trends on the different currencies (eg. AUD and EUR are showing more weakness than the GBP), so only ever buy GBP and sell AUD and EUR. Another possibility is to do some analysis on shorter term trends and workout a smart lot sizing algorithm to counteract the probabilities of big drawdowns.
I probably won’t get much chance to do the second idea for a little while, though I imagine I’ll start the first filter as it’s an easy one to implement.