Simple, Price Action, Based System, Basket of AUD Pairs, AUD, Australian dollar, Trading Systems, fx trader, forex IMAGE_1Table 1. Summary for some relevant trading system statistics for the three AUD symbols plus an equally weight portfolio.

Behavior is also significantly different across the three pairs as drawdown periods and profitable periods happen at different times. For example the strategy on the EUR/AUD has a long drawdown between 2008 and 2014 while on the GBP/AUD it trades basically flat through this period and reaches a new equity high before the EUR/AUD instance does. This helps when building a portfolio as the results are hedged between the different symbols. By using the three pairs in an equally weight portfolio (0.33% risk per trade) the maximum drawdown for the strategy can be reduced to 8.8% while the CAGR is increased to 3.12%. The Sharpe ratio achieved is a compromise between the three systems, with a final value of 0.64.

It is also worth noting that this is not a trend following system, as it lacks some of the typical characteristics of this strategy type. For example the winning ratio is significantly high (>50%) and the reward to risk ratio is in fact close to 1 for all pairs traded by the strategy. This makes this system easier to trade since the psychological punishment received by the trader in the form of trading losses is less frequent and when such losses happen they are about the same magnitude as winning trades. The fact that we are not trading a trend follower also makes this strategy valuable as a way to compliment a trend following approach trading across the most liquid Forex pairs.

The above shows that you can indeed create trading strategies that give positive long term historical testing results on at least some baskets of low-spread lower-liquidity Forex crosses. These strategies are rarely trend followers since these currencies do not tend to trend as strongly as pairs like the EUR/USD or the USD/JPY. This type of trading strategies can also be developed for baskets of crosses using the JPY, GBP and EUR currencies. It is important however to avoid including USD pairs within these baskets as USD containing instrument generally have much stronger trending elements that are not shared by the other pairs.

Daniel Fernández
Founder of Asirikuy.com
and Mechanicalforex.com