hi guys
if I have let’s say 2 strategies each of which have the following stats
50% winning rate each, and 10% drawdown each.
So if I trade both simultaneously, does this mean I am now in risk of having a 20% drawdown? or does the probabilty thing works differently when adding stuff together?
thanks
If the two strategies are uncorrelated and the markets they trade in are uncorrelated, then these are unconnected events, so the probability of one does not affect the probability of the other. Same as if you bet on a horse and you also bet on a football team. But in the forex world, most pairs are not perfectly uncorrelated.
Yes, you run the risk of a 20% total drawdown.
wow thanks for such clear explanation!
yea recently many charts have similar trends. I did know about pairs correlation but never thought about strategy correlation 
how would one test for correlation between strategies?
i presume they should be backtested on same chart and compare results? or is it more detailed/complicated than that?
For example, a major factor behind forex price change is risk tolerance. Two strategies which rely on high risk tolerance will be highly correlated.
A significant change in the risk tolerance levels of the big banks makes most pairs react at the same time and in a predictable way. Risk levels can be dramatically affected by sudden changes in global trade constraints, demand for raw materials, the cost of borrowing money in the biggest economies etc.
If risk tolerance increases, the markets will move risk-on and there will be more buying of speculative currencies like AUD, NZD, maybe CAD. Also US stocks. At the same time, the big banks will be selling risk-off safe haven currencies like CHF, JPY and maybe USD.
These types of rotations are sometimes even visible down to the 15-miniute time-frame. So many times pair AAA/BBB turns up at a given minute in the day: meanwhile pair CCC/DDD has turned down at the exact same time.
omg sounds so complicated!
I think this goes more into fundamentals? I havent yet started that part and i feel its going to be difficult…
Its not complicated - all the pairs are somewhat related but its very possible to track the 28 charts and separate them down into 3 groups - risk-on, risk-off and neutral.
A simple thing to avoid is e.g. going long AUD/CAD when all the other charts are bearish for AUD and bullish for CAD - unless you have a very good reason - maybe because there’s a short-term opportunity with limited risk.
good tip there! i’ll keep that in mind
thanks for sharing
It seems to me that everything depends on the number of orders, isn’t it??
This is not true, you just assess the situation, but you make a general decision.
So it does not increase the risks, but only reduces them…
It’s cool that you are interested in risks.
Today many traders forget about it, and this is definitely not good news.