Michael, I honestly don't know the answer to that. Yet. What I think would be ideal to help arrive at an optimal exposure factor at any given time, subject to user-defined constraints (such as max DD and expected total return, to name two) is a historical simulation of how a hedged carry basket such as this would have performed over the last few years. A simpler, but still very useful, test would stick with the same, static basket, derived as of the beginning of the test. A more sophisticated test would recognize that every positive UPL to RPL conversion (and every basket downsizing, if any) is an opportunity to dynamically alter the basket composition itself. This is where it gets really interesting... I've been meaning to do a historical test, but haven't been able to set aside the time for that project yet. Have you ever run something like that, or know of anyone who has?
I would love to be in that private project. I have touched it and yet to crack it...I have a test called Cash & Carry (Diverse 33) and I think I can capture every PIP in the ENTIRE 33 pair where I trade, but I do not believe that really, yet Could you imagine a way to dynamically adapt to every correlated anomaly with 33 pair, theoretically you could capture EVERY stray pip! But lets get back to the work at hand... Carry on...ho ho love that word "Carry" get it? Michael B. P.S. let's not forget about LTCM's folly...
late apex, The more I think about this the more it intrigues me. I have a platform that can easily do this... Don't you think I have enough on my plate considering all that has happened to me, recently? Sorry to digress, back to the thread... Michael B. A more sophisticated test would recognize that every positive UPL to RPL conversion (and every basket downsizing, if any) is an opportunity to dynamically alter the basket composition itself. This is where it gets really interesting...
Thanks for the prompt replies Michael. I will start playing with this starting 15EST on Monday (the spread should be less at Oanda). My goal is siginificantly less than yours as I would also like to reduce equity swings. The goal is to employ the unused leverage on the accounts as much of the trading done is through short term trading models. Any return greater than that I earn from just parking my capital in USD+ROR is good for me.
Try multiple baskets that hedge each other. so then you get this... Hedged pair within baskets. Hedged basket within the family of baskets. You can utilize ALL your LEVERAGE this way. Carry On... Michael B.
That is very true. A return will be made as the prices get back to the mean while interest will be earned as well (when the current long/short of the 10 currencies is used). What a trader could do is run the 10 pairs on a virtual account and when the floating P/L increases significantly...open the positions as Michael stated to take advantage of the reversion to the mean+interest. And if the floating P/L is significantly high then open opposite orders on the 10 currencies. However, the P/L made from this senario must be enough to pay the carry cost (negative interest). I wish Oanda let me play with their API. Oh well.
Fellas, There are guests here in ET, that are struggling just to understand Cash & Carry (Standard). These conceptual and very interesting discussions detract. I am just as interested as you about these theories and tests. But every one of the Cash & Carry threads lead in the direction it is starting to go now. Let's try and help those struggling and see what they come up with. I am guilty of getting my threads offtrack as much as anyone, and I apologize. Cash & Carry or PICS (positive interest carry system) is virtually unexplored territory and not publicized widely by those in the know... A fellah stole my PICS word that I coined, named Tom Saari. I went to go register a website named FXPICS and he took it out from under me. He claims he wants to get registered with the NFA, well I wonder what the NFA will think about him using PICS? Michael B.
What do you expect to happen when you post on a public forum? I see the same thing on OANDA as well. Watch out he does not go after you for Slandering his name.