Quote:
Originally Posted by PIP CHASER
As the EUR/USD is going down the USD/CHF is going up giving us protection. I know this doesn't happen in lock step and that is when the drawdown enters the picture. This is what I would like to measure over a long period to see what the max drawdown would have been after building up 60 lots. Does anyone have any suggestion on doing this? We will continue to receive positive swap for both pairs as long as the country's interest rate says as is.
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I am familiar with this strategy, but have never employed it for a variety of reasons, a couple of which are mentioned here. Let's just say the long-term feasibility of this is questionable at best; and the drawdowns that can be generated are unacceptable, despite the loss mitigation the hedge supposedly provides. I won't post a warning about this, because it's been done already.
A few years ago (2004? 2005?) when Freedomrocks (which I think was mentioned earlier in this or another thread on this strategy) began to take off, there was quite a bit of debate on this topic because it was the basis of FR's "income-producing" model. A lot of individuals involved in FR - of those who actually traded - had initial success but when on to blow up their accounts once conditions beneficial to hedging subsided. You may be familiar with this.
The only real means of figuring the outcome of the scenario you've mentioned is to model it by backtesting. You might search around for posts on FR or something like "EUR/USD USD/CHF hedge" because there is no doubt a lot of material on this subject to be found, some along the lines of what you're looking for.