Currency Diversification Simulator

Currency Diversification Simulator

This calculator shows how diversification into two uncorrelated currency pairs or forex trading systems affects trading performance. The simulator compares the results of trading two currency pairs or trading systems individually with the results that would have been achieved if they were traded concurrently and the risk capital was divided between them. There are three methods of currency diversification that this calculator applies to: 1) trading one forex trading system on two noncorrelated currency pairs; 2) trading two uncorrelated currency trading systems on one currency pair; 3) trading two noncorrelated currency trading systems - each on one of the two uncorrelated currency pairs. 

1. The long-term accuracy of the trading system (as seen over a few hundred simulated trades) will stay close to its past accuracy, while the short-term accuracy will vary.

2. The risk and reward parameters will be the same for all the trades, leading to a fixed payoff ratio.

3. The trader will take all the signals that the trading system generates (the trader has a high level of confidence in the system).

4. The outcome of any single trade is absolutely random; the probability that it turns out as a profit or as a loss is controlled by the accuracy of the trading system.

Note: This calculator shows that even if the correlation between the instruments traded is equal to zero there can be times when they go through their winning or losing streaks together. This explains why it is not possible to completely eliminate the drawdowns with the help of currency diversification (unless you trade two perfectly negatively correlated forex trading systems). You can still receive better protection from drawdowns by increasing the number of weakly correlated currency pairs and/or trading systems in your portfolio.

The calculator is made up of three parts which are described in detail below:

1. Controls & Performance Panel

The controls panel allows you to set the parameters that will guide the simulation. You can change all the cells on the controls panel that are coloured in red. Enter your trading system and money management system constraints on the System Controls panel. The Account Controls panel allows you to specify your starting account balance, the target return and if the profits are withdrawn during the course of the simulated trading. The values that you enter on these two controlling panels are used as the inputs for the generation of the trading results shown in the Simulated Account Activity Report, located at the bottom of the page. The information in this report is processed to calculate some of the common trading performance statistics which are displayed on the Performance Panel.

There are three sets of statistics generated - the first two describe the performance of the trading systems/currency pairs when they are traded on their own (in "Trading Only A" and "Trading Only A" columns), the last one represents their combined performance (Trading A & B).

The simulator will automatically recalculate everything each time you change one of the controlling cells or press one of the Recalculate buttons on the page. You can view the description of the panel elements by placing your cursor over their names. Alternatively, you can click on some of the elements to visit those parts of the site where they are described in more detail.

2. Performance Charts

This section includes two interactive charts which plot the values of the equity and the drawdown by using the data in the "Equity" and the "Drawdown" columns of the Simulated Account Activity Report.

3. Simulated Account Activity Report

This part of the calculator provides detailed trade-by-trade report of the simulated trading. The report has three sections which show the values of return, equity and drawdown that were seen during each of the three generated scenarios.

Control Panel  
               
               
  System Controls A B        
  Past Accuracy        
  Payoff Ratio        
  Mathem. Expectation        
  Percent Risked        
  Math.Exp.*% Risked        
  Capital Split        
  Exp # of trades to TR        
  Win (%)        
  Loss (%)        
  Account Controls A B        
  Target Return (TR)        
  Starting Balance        
               
             
Performance Statistics  
               
               
  Performance Trading Only A Trading Only B Trading A & B      
  Actual Accuracy      
  Total Profit or Loss      
  Percent Return | DB*      
  Max Drawdown      
  Max Drawdown in %      
  Drawdown Time      
  Trades to Target**      
  Highest Account Val.      
  Lowest  Account Val.      
  Max % Drawdown      
  Consistency***      
  Reward/Risk Ratio      
               
               
Performance Charts  
             
               
               
               
               
               
Simulated Account Activity Report  
             
               
Trading Only A Trading Only B  
Return A Equity A Drawdown A Return B Equity B Drawdown B  
1  
2  
3  
4  
5  
6  
7  
8  
9  
10  
11  
12  
13  
14  
15  
16  
17  
18  
19  
20  
21  
22  
23  
24  
25  
26  
27  
28  
29  
30  
31  
32  
33  
34  
35  
36  
37  
38  
39  
40  
41  
42  
43  
44  
45  
46  
47  
48  
49  
50  
51  
52  
53  
54  
55  
56  
57  
58  
59  
60  
61  
62  
63  
64  
65  
66  
67  
68  
69  
70  
71  
72  
73  
74  
75  
76  
77  
78  
79  
80  
81  
82  
83  
84  
85  
86  
87  
88  
89  
90  
91  
92  
93  
94  
95  
96  
97  
98  
99  
100  
               
               
  ;            
Trading A & B    
Return A Return B Return A & B Equity A & B Drawdown A & B    
1    
2    
3    
4    
5    
6    
7    
8    
9    
10    
11    
12    
13    
14    
15    
16    
17    
18    
19    
20    
21    
22    
23    
24    
25    
26    
27    
28    
29    
30    
31    
32    
33    
34    
35    
36    
37    
38    
39    
40    
41    
42    
43    
44    
45    
46    
47    
48    
49    
50    
51    
52    
53    
54    
55    
56    
57    
58    
59    
60    
61    
62    
63    
64    
65    
66    
67    
68    
69    
70    
71    
72    
73    
74    
75    
76    
77    
78    
79    
80    
81    
82    
83    
84    
85    
86    
87    
88    
89    
90    
91    
92    
93    
94    
95    
96    
97    
98    
99    
100    
               
               
             
Copyright © 2012  Forexhit.com: The New Forex Trading