FX MANAGERS
indicate that a long-lasting shiſt to a new volatility regime was under way. In addition, the industry was having similar and even worse difficulties. When volatility returned starting in mid-2007, the model performed as it was designed to do and it had a very strong run, including 2008’s 25% gain net of fees, rewarding our decision not to alter the model. We believe it is very important for our methodology to provide predictable outcomes for our investors. Te environment that started in mid-2007 is one in which our investors would have expected our FX Program to deliver better results and we are gratified that it met these expectations. Our commitment to guarding against hasty changes to the model’s methodology, of course, does not preclude us from making alterations if our regular diagnostics indicate they are clearly necessary.
FXTM Do you use Emerging Markets currencies? And do you think individual traders should use them, considering they don’t have to worry so much about liquidity issues?
AB Our FX Program trades a fixed set (ten) of currency pairs including two Emerging Market
currencies,
the Singapore dollar and the South African rand. Liquidity has improved dramatically
in some Emerging
Markets currencies over the past decade. We continue to monitor the benefits of adding additional currency pairs, taking account of both market conditions and liquidity needs
associated with the size of assets under management.
FXTM When developing a strategy, do you give
a higher priority to building
entry signals, exit signals or money management rules?
AB Entries, exits and money management rules are all important. But we elevate money management rules above all else. Profitability is the ultimate goal of investment programs, of course. But guarding against outsized daily volatility and unacceptably large peak- to-trough drawdowns is of paramount importance, in our view. Limitation of drawdowns allows winning streaks to liſt performance to new highs. For instance, our Program was not far below its high water mark at the end of the mid-2000s period of underperformance, allowing it to break to new highs in terms of investment performance quickly
in 2008. We
expect our model to perform better in some market environments and worse in others but in all environments we view predictable daily volatility and drawdown cycles to be more important than entries and exits. We believe our Program’s three levels of risk controls accomplish this.
FXTM Do you think that every strategy loses its accuracy sooner or later, or do you believe in long lasting market rules? Have you ever found a strategy that became profitable again aſter a long negative phase?
FX
AB Tere are definitely periods where our model doesn’t perform as well but I would not call it losing its accuracy. I think investors oſten think that strategies lose their accuracy when they are not providing positive results but as a systematic trader, regardless of your model, you will experience periods during which it doesn’t seem to be working. Our model is based on a basic theory and non-optimized specifications that have the capacity over time to adapt to changing market conditions and we would expect it to be robust over the long haul. I think the key to a long term relationship with a client is education and communication. As a systematic trader, our model is based on a set of rules and so if the client has a general understanding of our rules we become somewhat predictable.
FXTM Do you favor any particular time frame in your strategies? What is your average trade duration and trading frequency?
AB
As I mentioned, our model is comprised of two components that focus on different time horizons. Te short-term component has
average
trade duration of three days and is designed to profit from brief bursts of price movement and counter- trend moves whereas the medium- term component is designed to participate in sustained price trends and has an average trade duration of approximately three weeks. With
FX TRADER MAGAZINE April - June 2013 57
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