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This is the chat with traders podcast Yeah, that's right, this is Tessa co -host of chat with traders and we're in episode 298 How's it going for you?
Thanks for tuning in to one of the first few original trading podcasts from way back like ten years ago My co -host Ian Cox, and I are honored to keep it going still due to your listenership so thank you so much for your continued support.
Today my co -host Iain speaks with Christian Mayor, a systematic forex trader who has worked on the institutional trading side in the past and we don't get many forex traders on the show and I'm not exactly sure why so maybe we'll have to change that.
So Christian transitioned from equities to forex focusing on fixed size mean reversion strategies with some fundamental correlations where structural edge is statistically likely.
His initial losses led him to a research - and systematic -driven approach and backtesting as well.
He trades with fixed position sizes, wide -stop losses, and avoids compounding to minimize exposure to fat tail risks and black swan events.
Emotionally disciplined yet honest about the psychological strain of prolonged drawdowns, Christian blends rigorous quantitative methods with thoughtful strategy design, with a successful track record, including a 2nd place finish in one of the World Cup Trading Championships in the forex category, he also created globalfxanalytics .com to respond to the demands of traders wanting to understand more about his forex strategy and view his strategy's performance.
Ladies and gentlemen, all the way from Munich, Germany we're pleased to introduce Christian Mayer.
Hey Christian, I'd like to welcome you to chat with Traders.
Hi, hello. Thanks for having me.
So where are you now and where did you grow up?
I'm in Germany right now, actually in Munich, in Germany, where I also grew up.
So tell us about, a little bit about your early years.
When did you first start having interest in the financial markets?
That was probably my last year of high school and first year of university.
So I studied economics with a minor in informatics.
So I also learned how to program.
And that was when I realised that, I think I learned, people from my generation probably many learned how to trade at the very beginning by simply Googling how do you trade?
And then usually, the first thing that comes up is some sort of technical analysis very often, at least that's how it was for me.
And that's when I thought, well, I'm also learning how to programme.
So nowadays there's a lot of historical data out there that you can get for free and you could potentially back test these strategies that you can find very easily when you just google technical analysis for example.
So that's how I first got into trading and my interest peaked there.
Did you know anyone else in the field or did you just strike it off?
Did you go solo sort of speak?
I did go solo actually at the beginning So I didn't I didn't really know anyone else who wasn't trading I think actually in in Germany it's people are people don't like taking risk so there's also not such large industry as in in other countries so yeah I was definitely, I didn't know anyone else in the industry.
So when did you actually open up your first trading account?
That was that very first year at university.
It was a very, very small account.
I think it must have been something around 500, 600 euros.
So very, very small.
But then again, it was my first year studying and I wanted to test a strategy, but I didn't backtest yet, but I read about, on the internet that was a technical strategy.
That was basically the, I'm sure you've heard of the RSI, which is a technical indicator that shows oversold and overboard signals, and I tried that one out on equity indexes, which that was my very first experience with it.
That was probably one of the worst, first experiences you can get because it worked at the beginning, but I obviously didn't, now I know that I didn't quite understand I was doing, but at the same time, you get rewarded.
So, that's why I think that's one of the worst combinations that you can have at the beginning.
So, it did work for a few months, and that's when I started thinking, wow, I found something incredible here, until, as many mean -reverting strategies, it works until it doesn't.
At some point, the market started to trend, and that account unfortunately went to zero.
What year was this?
That was year 2012.
2012. So, the market was trending up rather steadily?
At that time? Yes. I see.
So, the RSI showed overbought the whole time.
Is that... Yes. When you short it, and it keeps on trending up, that doesn't work so well in your account.
At the beginning, it was working for a few times and that's when I started trading more size and that's exactly when it stopped working.
And so did you dive into any other kind of technical indicators or change up your strategy in some way.
So that was a very valuable lesson because I blew the whole account.
So the next time I decided that I'm first going to do the research, I'm really going to backtest the strategies, think about what I'm what I'm going to be trading before I actually put in real money.
And that was when I really put in more time to learn how to backtest the strategy.
I did that using R and Matlab, those are programming languages, and they are actually quite useful because they have a lot of libraries with which you can back test a lot of strategies very easily.
That's what I used and I started back testing a lot of strategies.
I was looking at the beginning mostly it was mostly mean reverting strategies so that was the RSI Bollinger bands I've heard you can use.
I used them for mean reverting signals.
It's also possible to use them for trendfalling obviously, but in my case I used them for mean reverting strategies.
Then also the Larry Williams percentage, the Stochastics index. All of those indices that are very similar actually.
They're all mostly mean reverting indicators, and that was what I was back testing at that time the most. And that was also when I realized that for equity indexes, they didn't work as good as for some foreign exchange paths, for example.
Why is that? At that time, I didn't quite know why that is the case, I was just happy being able to find that out and not to do the same mistake again.
Then afterwards, I started also researching more fundamentals together with the technicals.
That was when I realised that a lot of these currencies were these, whether it's RSI or Bollinger Bands or Larry percentage and so on, works.
Those are usually economies with that are highly, how do you say, that are highly interconnected.
In this case, for example, an expert that I found that was very profitable with these strategies, was for example, the Canadian dollar versus the Norwegian crown.
And that's mostly because both of those economies, oil exporting economies, they export a lot of oil.
So, as a result, they have a very high correlation to the price of oil.
And since both of them export a lot of oil, you can also plot one currency against the other and you will have what I would call a mean -reverting time series, which means it's basically data that mean -reverts, which makes fundamentally sense because both currencies should be going roughly into the same direction when the oil price goes up or when the oil price goes down.
When you noticed anomalies in this when it didn't track oil for some reason, were you more tempted to increase the size of your positions to take advantage of it eventually catching up?
The first version of the strategy was quite simple.
So I was just looking at these technical indicators and I didn't even know about the possibility of, well I didn't think of it at that point in time, that you can average in and average out of your trades.
It was still very new to me and the first strategy was very simple when you get the signal you go all in and when you get the take profit you get you go all out so there was no averaging in or any sort of variable lot size that I was using.
So did you switch basically to from stocks into foreign currencies?
Exactly. The basis for this was really the back test that I was doing.
I saw that Mira version tends to work on certain FX pairs, with time when I was doing more and more fundamental analysis, that was also the time when I also started to get to know some people in the industry.
I started to reach out to people on LinkedIn, especially a lot.
You know how it works.
You text, especially the beginning when you're just a student, you text a hundred people.
Maybe one or two replied.
But that worked. And that helped a lot.
How long were you doing this for?
Did you have a other job on the side, or were you making money just from trading?
That's a little bit difficult to answer because I was doing that since the beginning of my studies, and I'm doing it until now.
So I've always been running this strategy.
Uh huh, so in other words, you didn't need to work a job on the side or you are doing this, you are doing trading full -time as your full -time profession from the beginning?
Okay, okay. Now I understand the question.
So I wasn't doing it full -time.
This is a little bit, that's difficult to answer because the strategy basically works in a, on a very long -term time frame.
So it does on average about 10 trades per year.
That's approximately one trade per month.
So you can perfectly combine it with a full -time starting or a full -time a full -time job.
Did you end up getting a job in the financial industry?
Yes, my first job out of university was an investment fund that traded a long -term strategy on equities and bonds.
And it was a very much a very risk parity -like strategy where you basically try to invest less in the asset that is currently highly volatile and you try to invest more in the assets that are currently less volatile.
Simply because history has shown that volatility often has a very high so -called auto -correlation, which means if volatility starts going up, the probability is high that it will keep on going up for a certain time window and the other way around.
Yeah, that's the theory behind it.
And that was what the fund was doing basically.
When we look at the VIX index, which measures volatility on the S &P 500, it looks like the the times of volatility or when the VIX is high, is actually pretty a narrow window and so and most of the time the VIX is fairly low and steady.
Just curious, how did - what was your role there at the at the fund?
And tell us a little bit more about how how they did the strategy.
My role was, I was part of the investment management team.
where we basically had to check the strategy that is working correctly, rebalance also the assets.
As I said, when the volatility changed off the assets, you had to rebalance it.
And that was mainly the job.
That was a team effort, so we did it as a team.
And it was also a systematic strategy.
So there was no intervention from our side in any discretionary way.
Aha, so this is what you had some sort of system that would tell you or you had metrics to go by like.
If the realized volatility of the underlying asset was going over a certain threshold over a certain period of time, you would stop investing in it and instead trade out of it and trade into the other assets that showed less volatility.
I see and the other assets are what the bonds or something else.
Bonds exactly, yeah.
Yes. Is the goal here to try to really reduce a chance of being hit by a black swan?
Yes. What you're talking about sounds very similar to I don't know if you've heard of Nassim Taleb, he wrote the book on black swans.
And he mentioned this as one of the strategies the barbell approach to overweight, very conservative of investments like bonds and then maybe 80 90 % and then the 10 to 20 % you put in much higher risk assets.
That's very much the theory behind it.
This fund also tried to keep the drawdowns low simply because of the, because of the mathematics behind it.
Because if you have, for example, a 50 % drawdown, you need 100%, you make 100 % just to get back and break even exactly, yes.
So what were some of the assets that the fund was investing in on the riskier side of the equation, with a smaller portion of the total assets, like individual stocks or options or high risk type assets?
So this fund was quite straightforward in terms of assets, because this was basically just the fund was just investing by ETFs into equities and into fixed income also via ETFs.
So there were no leverage products involved or derivatives.
During this time, you're also able to trade your personal account without any restrictions?
That was one of the reasons why I joined this company, because it was possible.
For many other companies, it wasn't possible.
So they already tell you this during the interview that you cannot trade any of your positions or you sometimes also have a minimum time horizon, for example, you have to be invested for at least 30 days in an asset and you cannot hedge it and so on, but here was possible.
That was one of the reasons why I joined the company as well.
Did you learn anything at the company that you later incorporated into your own personal trading?
At this company, not too much because it was a very longterm strategy and it was mostly in equities and bonds.
Where I worked later, I worked also at a proprietary trading company where they did quite a few short -term strategies.
And that was a little bit of an eye -opener for me, especially in terms of my, with regards to my own strategy that I was using still.
Tell us why was it an eye -opener?
It was mostly an eye -opener because that's where I learned what it means to have, there's no official technical term for it, but mostly they refer to it what it means to have a structural edge, which I would define as understanding your asset in such a way that you know where it's most likely going to go in the midterm and long term, especially.
What does that mean?
When you look at equity indexes, for example, if you look at the whole history, you will see that they mostly in the US tend to go up over time.
If you take a very very long term view on the Canadian dollar versus the Norwegian crown, for example, and you plot the chart, you will see that is highly mean reverting, which also fundamentally makes a lot of sense.
Or when you look at their volatility futures, you see that over time because of the futures decay, it's basically just a line that goes down on the chart.
And this is something that they would call a structural edge, where you just know where long term or mid term, the price of the asset is most likely gonna go, completely independent of what the current fundamentals are.
And that's something where I really learned, it's not gonna make sense to try and trade a mean reverting strategy or indicators on a trending asset, it's just not, it doesn't matter you can tweak it however you want but it's in the end if you find something that is profitable it's likely over -optimized.
That was basically the most valuable lesson, but I really learned that there's nothing more important to then to have a structural edge and to really understand the asset but you're trading in our pre call you mentioned about part of the strategy I believe for yourself or at the fund was to not reinvest the the earnings, so as to help reduce the likelihood of getting blown up by a black swan by continually compounding.
Could you go more into that?
Some strategies, when you backtest them and you use, for example, a portion of your portfolio size as trading size, for example, you say you want to only risk one percent of your portfolio in every trade, the good thing is that you compound your returns.
The bad thing is obviously your strategy always has to work very well in order for you to not have a very large drawdown of which you cannot come out or you blow the account or blowing up the account.
If you try and trade a purely fixed sized strategy, so you trade with every trade you take exactly the same position size.
Let's talk about an example.
If you have a strategy that on average per year, can make you 50%, but it can also lose 100%.
This is obviously a strategy that you cannot implement.
However, if you trade this strategy over 2, 3, 4, 5, 10 years, let's say, after the first two years, if you make 2 times 50%, you already up 100%.
And since you're not increasing the trading size even though your back has showed that maybe once every 10 years your strategy has that 100 % drawdown, you're already up 100%.
So even if you have that drawdown, you will just be back at your initial equity and you can trade out of that drawdown quite easily compared to if you would compound your returns.
In which case whenever you have a 100 % drawdown, your account is gone because you're compounding the returns you're using every time.
With every trade, you're basically risking your whole portfolio.
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Ryan Reynolds here for Mint Mobile.
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I'm told it's super easy to do at mintmobile .com slash switch upfront payment of $45 for three month plan equivalent to $15 per month required intro rate first three months only then full price plan options available taxes and fees extra evil terms at mintmobile .com I'd like to dive into the subject of black swans what you know what are black swans for listeners in the financial markets What do they even call that?
So, basically, black swans essentially are quite rare in real life.
And that's basically also why this metaphor is used.
Yeah so, black swans are basically just events that are very rare that can happen every once in a while.
I guess one of the most recent and best examples is probably how assets traded during the corona crisis where we saw an incredibly sharp downturn.
but at the same time...
Shortly after, assets rebounded very quickly.
So that's, I think, a typical example of a Black Swan event.
How do Black Swan events differ from regular periodic bear markets over time?
I mean, aren't the end results the same?
The end result can be the same, but the volatility is much higher.
So that's probably where this sentence also comes into play.
The market can stay irrational longer than you can stay solvent.
So this means the volatility can be so high for a short period of time that.
You blow your account, even though in the end you, so you get, for example, a margin call, but in the end you're trading strategy would've actually worked at the end of the year.
Why would your trading strategy work at the end of the year?
Because the assets, that's obviously the, that is the underlying assumption.
that has to hold, that's because the underlying asset would mean revert.
So, for example, let's say at the example of the Canadian dollar versus the Norwegian crown, which went up quite a lot during Corona.
Here that's a perfect example where you would see an incredibly high drawdown, which in the end ends up making money, but you have in between an incredibly high amount of volatility.
So that's why it would end up making money because it ultimately mean reverts.
Obviously here, the assumption is that it ultimately mean reverts that has to hold up.
When we talk about black swans, is it a news triggered event, like some unknown or some outside factor that is unknown that hits the markets and then that causes the markets to go down or what?
It can be. I think it can also be technically related.
For example, we did have in the yen also a flash crash, also in several stock indexes that has happened in the past. I wouldn't call that a fundamental reason, that was just a very quick technical reason from what I know, why the markets basically traded at a very high standard deviation for a very short period of time.
So how do we protect ourselves from black swans?
So this is the best way.
It obviously depends on the portfolio size as well but the best way would be to use stop losses.
That's how I do it with my strategy.
So basically I use a stop loss at which that is systematically set.
And then that point I would get out of the trade, no matter what, no matter what the reason is, it can be a fundamental reason.
It can be a quick mispricing, a technical mispricing as we've had a couple of times in the past in several assets.
So that's how I do it.
Obviously, this is very much tied to your portfolio size because the larger it is the less likely you are gonna get filled at your stop loss.
And especially if we're talking about some sort of flash crash or a black swan that happens quite quickly where liquidity dries up suddenly the portfolio size makes a big difference.
Yes, here, luckily when you trade foreign exchange markets especially G10 FX, which is highly liquid, we're not talking about some exotic emerging market pairs, but about G10, that's quite liquid compared to many of the assets.
It doesn't really matter for you then whether the event shocks you or not, or whether you even pay attention to it.
you just said and set your stops in just like you do in a normal market, whether it's no matter what the market conditions are.
Did are you dissuaded?
When would you get back into the position?
When would you put on positions if you believe that a black swan is underway?
or some some news event happened that shocked you?
What kind of indicators do you look for to get back in the markets?
In this case, I would need a new signal, which means the market would have to trade back towards where my take profit is which is what I use is the average price over a last certain time period and when it comes back to that and again, trades away from it and I get another signal and a new signal that's when I would get in again.
So I would actually, so to keep it simple I would have to wait for another buy signal or sell signal.
Yeah, I see so you're you don't find yourself influenced by the news and the fear of the time like for example and during covid when we had the rapid fall of the markets and then you know a lot of fearful news about you know, this new event that no one was expecting and people saying, oh the economy is not gonna recover and all that, does that, do any of those types of news influence you one way or the other?
Or are you just strictly looking at the chart and nothing more?
It doesn't really influence because this is already, I've already, the strategy is back tested throughout several time periods and especially throughout, for example, 2008, the financial crisis, 2011, the European, the European crisis, then also the crash we had in Chinese indexes in 2015.
So, as a result, I've sized the strategy in such a way that during a black swan, you would have a large drawdown, yes, but you should usually survive, your portfolio should survive this.
That's why I still trade also during a Black Swan event.
So I don't shut off the strategy.
I keep it going in this in this case and because I adjusted the size so that is highly unlikely that the portfolio goes to zero, basically.
So tell us about your sizing technique.
Basically, the way it works, as we just talked about briefly, I use a fixed size trading strategy, so the size really does not change.
Of course, the downside is that you don't compound your returns.
The upside is that your drawdown compared to your initial equity goes down over time every year because you accumulate more money but your drawdowns in an in an absolute number stay the same.
So for example let's say you have a strategy that the way you're sizing it you have a portfolio of 100k you have a strategy that makes on average 50k per year approximately 50 percent after two years for example you accumulate it to 100k The max drawdown on the strategy was 100k.
So let's say after 2 years you get to that drawdown, you're down 100k, but you still have another 100k.
So you're fine on that.
Now after 4 years, in total, you have made 300k and now the 100k drawdown is not 50 % anymore, it's only 33%.
And every year basically your maximum drawdown, assuming that the maximum drawdown is the historical drawdown.
There are some people who also like to, I read a lot that some people like to assume that the next drawdown is gonna be two times the historical drawdown, which is fine as well.
Everybody uses their own assumptions and ways to back test and to trade the portfolio.
But if we stay in this example, the more years you trade the strategy, the lower your maximum drawdown becomes in percentage terms. Obviously that's a huge advantage, but the disadvantage is that you don't compound your returns.
As long as the absolute return is high enough, I would argue that it doesn't matter, that's fine.
Then you don't compound your returns, but if you have a portfolio with which you make, let's say, a million per year, I think you're still gonna be quite happy with the million dollar returns, even though They don't compound.
They stay at a million for the next 10 years.
So what do you do with the, all the profits that you're taking out, do you reinvest it elsewhere?
Precisely, yes. You reinvest it elsewhere and you also keep it in the portfolio as well.
So because you also, you do want to make use of that mechanism but in percentage terms your drawdown goes down, but that obviously only works if you keep part of the amount in your portfolio that you make, keep part of the profits within the, within your portfolio.
And some part you can also take out.
You can obviously invest somewhere or just save it up precisely here and that's, that's basically what I, what I like to do as well, yeah.
So it's a, it's a mix of both.
And so you're, you're, you're doing this just with foreign currencies, is that correct?
Mean reversion strategies?
That is, currently I am only doing this with mean reverting FX pairs, correct.
There's also some other interesting mean reverting relationships in, for example, calendar spreads, so that's futures for example that expire with the same underlying that expire for example in one month versus in six months for example but that's something I'm not currently trading.
I'm currently researching.
But yes, so right now it is on foreign exchange paths and only on economies that are highly correlated.
Sometimes traders hear the phrase about avoiding fat tail risks.
What does this phrase and what does it mean?
This is where the concept of the stop loss also comes in.
You try to to avoid very large drawdowns.
fat tails in your distribution of returns, especially for obvious reasons to the downside, because it takes — because once you're, for example, down 50%, as we mentioned earlier, on the portfolio, you need to make a 100 % return on that just to get back to break even.
That's why I think it's incredibly important to minimize that drawdown as much as possible.
So, in my strategy, this happens over time systematically, simply because I trade fixed sizes.
In addition to that, I use stop losses, which helps as well.
But here, I have to say, it is possible, for example, to have a very high streak of losing trades.
You can have, for example, 10 trades in a row, and if you risk 5 % per trade, then that's already 50 % of your portfolio.
So, a stop loss doesn't just completely, it's not necessarily the solution.
Your strategy obviously also has to have a high enough hit ratio so you can make up the losses.
Well, what does that mean?
A high enough hit ratio, meaning percentage of winning trades, or what?
What does that mean?
Yes, yes, precisely.
Yes, percentage of winning trades, yes.
So, have you had any drawdowns that were significant enough that caused you to change your strategy?
Luckily, not yet. So the drawdowns I've had so far, we're all within the parameters.
We're all within the historical drawdowns.
So that has not happened yet.
That being said, even though it's highly systematic, the strategy is highly systematic, it is incredible how difficult it is to trade it during a drawdown, even though you have your historical back tests, You have your assumptions, you have your, you have your, your stress tests, you you've checked the data, you've checked the fundamentals, you've done all your homework.
But you still, you, especially because in my case, the strategy really trades about 10 times per year on average, approximately once per month.
And when, when you have a draw down, it takes, especially you, the, the, the length of the month and you just sit there and you have to look at your portfolio for a whole month while it's in a drawdown.
And especially when it's a large drawdown, let's say 20%, you do question yourself, you do question your strategy, you question exactly what you just said, you're thinking about should I maybe change the strategy?
Should I change the parameter?
Maybe this time it's different.
No, I'm smarter than the numbers.
I think this time it's different.
You have this thought constantly and that's something but it's difficult to work against but so far it has been possible for me.
I see and during these drawdowns are these cases where the foreign currency that you're trading gets more overbought or more oversold in other words it goes into realms that are extremes on the chart.
Yes, it does And this is probably a good part too, to explain how I've also changed the strategy over the years.
The strategy itself stays the same, but I've changed the way I entry the strategy.
At the beginning it was very simple, you just get the signal, you go all in and you get your take profit.
You get your take profit level and you get completely out.
Now, I usually try to trade in tranches.
So, I put in first one -third of the position side, then two -thirds and then the last third. That's how I do it.
And the more it deviates from the mean, the more I invest basically.
So, the more you are invested.
So, that's basically how it works.
So, when it gets to extremes that's usually when I invest more size.
The downside of the strategy, if you change it like this, is that if you're right on the first position size, you're going to make less money than you used to, but the upside is that you can stomach much larger drawdowns.
Yeah. And basically here as well.
I backlisted the strategy, backlisted several ways to average in.
And this was one of the best, this was one of the backtests that showed that historically the best results and that's why I'm using it currently.
Now, did you find any other foreign currency pairs that were also good to trade or did you just stick with the Norwegian currency versus the dollar, I assume?
Yeah, that's the Canadian dollar.
That's the Canadian dollar, yeah.
This relationship, you can also see, for example, with the Australian dollar against the Norwegian crown, you can also see it with the Australian dollar against the Canadian dollar.
Both countries also very heavy commodity exporters and the currencies tend to tend to be also risk on currencies.
So, when everything is good on the market and we have positive news worldwide on a worldwide basis, usually these currencies tend to go up and when there's uncertainty these currencies tend to go down.
So, this correlation also creates this mean reverting tendency of the cross -pass, yeah.
Is any part of your strategy discretionary?
Not really discretionary, no. I would say, this is where it gets a little bit tricky.
In my opinion, discretionary traders are systematic traders and systematic traders are discretionary traders.
Me implementing this systematic strategy is a discretionary decision.
I said, okay, I'm going to do my analysis fundamentally, technically, and then I will decide if I trade this or not.
So I'm doing a discretionary decision when I say, I think that these economies are highly correlated, and I think it will stay this way for the next, let's say, 12 months.
And then in 12 months, we reevaluate as well.
And if you still think that the next 12 months, the economies will sell highly correlated, it, then you keep on trading the strategy basically.
The execution itself is completely systematic, but I think simply deciding that you are going to implement the strategy is a discretionary decision.
But to answer your question, it would be categorized as a systematic strategy.
It's just my own opinion that it's also discretionary, in nature.
Yeah. So as we're doing this interview, crude oil is near multi -year lows, what are you seeing in the foreign currencies right now with regards to these extreme prices?
And is it playing out kind of the way you're anticipating?
So that's a good, that's an excellent example.
Currently for example, if you look at the Canadian dollar versus the Norwegian crown, You will see that it is trending downwards and this in my opinion has more to do with the tariffs that, the news about tariffs that we get from Trump currently.
So, this is where you see how it's, why it's deviating so much from the mean currently.
Okay so just to interject here, we're talking about the Canadian dollar versus a Norwegian crown.
Which is going up? Which currency is very strong right now?
Yeah. So the Canadian dollar is falling against the Norwegian crown.
And why is that? But both countries are big oil producers.
Yeah, precisely, but there's another variable and that's currently the tariff talk that we have. That yeah, the current US president is imposing the tariffs against Canada and that's also where we see a weakness in the Canadian dollar.
Which is now causing the expert to deviate from the mean.
Which is, in my case, it's something good because it gives me a trade opportunity.
So now right now, I just got a long signal and I would put in the first position now and then if it starts deviating more, I put in the second and then third position.
And if I'm less lucky, it just stops deviating immediately, then I still make a profit, but not as much, than if it would deviate more.
I see. So you're going along the Canadian dollar, is that correct?
Correct, along the Canadian dollar, yeah.
Because it's oversold versus the Norwegian currency, correct?
Correct, yes. I see.
So these correlations, given that the foreign currency markets are extremely competitive, what stops big firms from jumping in on these type of correlated trades and just overwhelming the market with this?
Is there an issue of not enough liquidity?
It sounds like what you've come across here is a high probability play?
Yes, it is. I would call it a high probability play as well.
The issue here is there are, one is liquidity.
So a large company, the Canadian dollar definitely is very, very liquid and in general, G10FX.
But the Norwegian crown probably within G10FX is one of the least liquid.
so this prevents very large institutions to trade big sizes in it.
That's first of all, and second of all I also think that it's a strategy that is not – it's just now not so – not very common to trade these currencies, I would say.
Most investment funds, large investment funds would rather invest long -term in equities for example.
The short -term play is the prop trading companies and the hedge funds.
I don't think it's enough size to completely stop the strategy from working.
That's what I would assume that that is one of the reasons here.
A few years ago, I interviewed a FX trader who says that the the sharks in the game.
Take a look at all where all the stop losses are placed both on the upside and on the downside.
And they routinely engage in stop loss hunting, to to flush those players out.
And then and then take the opposite position after they've flushed them out.
How often do you encounter or have you encountered obvious cases of stop loss hunting in your experience?
I think in my case with the strategy, I'm quite lucky because I don't look at precise technical levels, where I would say if yesterday's low is taken out, that's where I get out.
That's where I set my stop loss for example.
I set my stop loss simply using a multiplier of how many in currencies we would be talking about cents, how many cents the price is away from my entry price.
And that's where I get out.
But that's without looking at any precise historical level where you would see maybe, okay, he traded a lot in the past or there is resistance or support or anything like that.
I don't use that. That's why I would say, in my case, the strategy doesn't affect me.
So net net your stop losses are typically kind of what percentage range away from your entry point?
Yes, not a percentage rate it's an absolute value so it's a it's a term of cents that's that's how I calculate it.
Oh I see, but what does it translate to in percentage terms usually I mean are you having really wide stops, typically five, 10, I mean 10 % or more or your stops pretty tight.
Yes, yes, yes, they're, they're actually very wide.
They're around, yeah.
10%, you could, you could probably get to 10 % approximately, yeah.
Mm -hmm, mm -hmm. Exactly.
I see. I see. To wrap things up, what do you struggle with most as a trader?
I think what I struggle with most trading related would be since ,so this is this is a mean reverting strategy which means usually you have a very high hit ratio but your average drawdowns are larger than when you use a trend following strategy where you often cut your losses very quickly and you let your winners run for a long time.
I think this is something where psychologically, it's a little bit more difficult because you have larger drawdowns.
And you have to you have them more often.
Overall, in the end, you take profit far more often than with a trend following strategy.
However, in between you have more drawdowns and larger drawdowns.
And that's something where I think psychologically this is quite difficult because you have this constantly.
So, the strategy does about 10 trades per year.
So once per month approximately, and you have this every month.
So, I think this is something where I would say it's easy to struggle with a lot, but once you get used to it, and especially when you trust your strategy, you've done your research, This helps a lot I think to to use the strategy correctly.
Excuse the last interruption here.
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Thank you. Now back to the chat with our guest. And how long have you been doing this particular strategy?
You said since 2012 is when you first started or 2000 right around then?
Yes, correctly, yes since then.
And I've been trading this strategy where I changed the entry logic for approximately two years now.
Is there anything else that you're working on that is inspiring?
That's a good question!
I've been doing some research, especially regarding...
I've read a very famous page now from a book that was written by Ray Dalio that shows how diversification is the holy grail that you can find because it can help when you find several strategies that are not correlated and you add them to one portfolio that you're overall drawed, and you can reduce your overall potential draw on dramatically.
And this is where I'm researching as well some trend -following strategies, especially in assets where you can see that they are longterm structurally trending.
For example, equity indices, if you look at the, on a daily basis when I'm not talking about an intraday basis, but daily candles, you can see how it trends long -term upwards also when you look at weekly candles.
And this, for example, would be a great complimentary strategy with the one that I'm currently implementing because, well, yeah, you can basically reduce your drawdowns, right?
So that's what I'm currently working on.
It's basically, I'm back testing trend -following indicators on a trend -following asset in a trend -following time frame.
That's the basic idea behind it, and by adding this strategy to my portfolio in the future, it will be possible to reduce drawdowns.
Obviously here, the assumption has to hold that in the future, the asset will keep on trending and not become, suddenly, I mean, reverting asset.
Well, Christian, I'd like to thank you for coming on Chat With Traders.
Thank you, thanks a lot for having me.
Yeah, how can our listeners reach you?
Yes, so they can reach me easily on X, and my handle is ChristianRM underscore five times eight.
Great, fantastic, thanks for coming on the show.
Thank you. Hey there, there were some additional parts of our chat that didn't quite make it in the main part of the interview, but we included it here at the end for those who made it through the end.
This is where I asked Christian about the world cup trading championship competition and his thoughts on the strategy he used for the competition versus the strategy he uses in his actual personal trading.
I think these, these championships you definitely on average have to take more leverage than you would usually do, which implies also a larger drawdown that you would usually have a potential larger drill.
And then you would usually have. Why?
Because I mean, you see it in the returns as well.
People have in one quarter three digit returns like over 100%, sometimes even over 300, 400%.
Also in the yearly competitions, you also see sometimes people having 1000 % return.
So very often you leverage more than you usually would.
So that's one important thing to consider when you see this results.
And there's another thing that I would definitely like to mention without knowing of 100 % because you don't know what strategies every single winner has used.
I believe such short -term contests are very favorable of mean -reverting strategies, because usually your wins are more frequent than with a trend -following strategy.
With a trend -following strategy, on average, you can have maybe a whole year where you only get stopped out with very small losses, so you don't have a huge throwdown, but you obviously didn't make any profits that year.
And then the next year, you could have a year where you make 100%.
However, with mean reverting strategies, the profits are usually far more constant.
So, from having that in mind, it's very likely that most winners of any kind of short -term competitions use mean reverting strategies.
So, that is something that I have seen as well – just from my own experience as well because I also trade mean reverting strategies.
Yeah. That's just an additional information that I would like to share I think.
So during this contest, did you take on quite a bit more leverage than you normally do?
Approximately twice as much leverage.
Yes. So that was necessary in order to get the returns.
In my case, I actually also started the trading competition late.
I only had half the time.
than the other participants, so as a result that also was the reason why I had to use higher leverage.
Did you learn anything from this competition and did it impact the way you trade normally?
I think what I definitely realized is that I think it depends also on everyone's personality, some people thrive in competition, some people less, but what I've learned is that I was far more comfortable with taking larger position sizes once I was already in profit, there's a huge difference between starting the year, you have 0 % returns and then you take on a position that could potentially cause a 10 % drawdown, so there's this scenario, you have zero performance for the year so far and then you could potentially use 10 % on the next trade or you're already up 20 % and you could lose 10%, then
you would still be up 10 % overall.
And this is where, especially in these competitions, you tend to say, okay, I'm up 20%, let's risk these 20 % for the next trade.
So you can potentially make a higher amount, a higher return.
but if you lose it you just break even.
This is something that I usually don't do with my own systematic strategy because it's highly systematic, also the position size, but in this competition you have to do in order to get to the high returns that are usual, that you usually see in these competitions.
This is something that I definitely learned during the competition.
I really started to apply what I previously read about some discretionary traders that they tend to increase their trading size when they have had a lot of winning trades.
That's something that you have to do in these competitions, in my opinion as well, in order to get these huge returns to win the competition.
Okay, so what's the interesting part about this?
Psychologically, I traded simply by looking at my focusing on my equity that is at risk.
So once I was up 30%, I was completely fine with taking a larger risk.
If on average, let's say my trade, I risk 10 % of my portfolio, but I'm already up 30%.
In this competition I would say, okay, so I'm already up 30%.
I'm fine with just breaking even, so let's risk those 30%.
So my potential profit is much, much higher.
It's three times higher than my average trade, but the loss that I have, yes, in percentage terms it's higher, it's 30%, it's also three times higher than usual.
But if you look at your equity, you're gonna break even.
And that was something that I was focusing on that I usually don't focus on my systematic strategy.
But in these competitions, I think simply from my own way of trading, I can imagine that many other people also trade like this during these competitions.
I see. And so would you apply these to your real life trading?
I wouldn't in my case, simply because that's likely a psychological part of myself.
I do like having rather consistent small returns then having every now and then huge returns, which is more like a trend following or swing trading approach. But that's just psychologically how I like to trade.
Question for me, I'm just curious, so you came in second place for that championship.
What prizes were there?
Did you? What did you win?
What did you get out of that?
So, in this trading competition, this is basically the most famous trading competition.
There are several also for FX, but this is the most famous one for futures and FX and that's why many people participate in it.
I mean, it's also the one that for example, Larry Williams won, Paul Tudor Jones was also participating in this one.
Oh! The US Championship one?
The US... Yes! ...I see.
I know that one. Yeah!
Yes, exactly, but not for equities.
That's the one for FX and futures.
Oh, I see. What kind of prizes were there for, for winning?
Yeah, there's no official price that you get.
So there's no, what you get is the trophy.
Yeah but especially also you, you basically, you get to a pool also of recognition.
and also you get to a pool of previous winners that you can exchange ideas with or simply network with.
Awesome. Are you going to join again this year?
Probably. Yes. But I will be joining for the third and fourth quarter championships again.
Yes. Okay. And just for the audience, what's the name of the contest again?
It's called the World Cup Trading Championships.
For forex in this case.
When you go to the standings, you can see that there is a futures table and a foreign exchange table but you can see the traders for foreign exchange and the ones for futures trading.
Awesome. Well, congratulations for last year's and good luck for this year's.
Thank you. And here I also asked more about the reasons behind his website globalfxanalytics .com for a little bit more context.
I've worked institutionally in FX trading and I've seen that there's quite some offering for long -term equity strategies for retail traders.
There are some good online courses that you can do, a lot of groups as well, that have a great historical track record. But when you look for foreign exchange, especially for retail, it's not very easy to find anything.
And with my experience, I thought I can share this in a format as of a course, for example, or a telecom group that is currently also very popular, but format and just share my knowledge and my trading strategy in foreign exchange, especially because I saw that it's very difficult to find somebody who is offering a profitable strategy with a track record in foreign exchange that also knows about fundamentals, knows about technicals, actually understands why the strategy works the way it works.
That's quite difficult to find.
In equities, not so much. I actually was able to find relatively quickly quite a lot of offerings, but for a foreign exchange, it was almost impossible.
And that's where the idea came from that I would like to share my knowledge, share my strategies, especially because the type of strategy that I trade, luckily, if a lot of people would implement it, I don't think it would just suddenly stop working.
The currencies wouldn't simply stop deviating every once in a while.
And that's why I think there's no problem to show it.
To share. Exactly. Yeah, precisely.
So that's the idea behind it.
And the initial thought was to offer it via copy trading.
Now I've also extended it to a Telegram group and I'm very likely going to also implement this with a course.
Why? Because, I'm simply getting so many questions on the strategy, that I think it would make a lot of sense to also offer a course here.
That's a lot of work, trading in also offering this service.
Yes but the good thing is since it's a long -term strategy it's not that time consuming.
So you can really run this strategy easily with just a few hours per week.
So that's a good thing.
Very much like certain swing strategies, for example.
you
