Frequent emailer Rod had a question recently about running multiple trading strategies.
I would like to run 3 different strategies on a single forex pair. If I do this in one account, everything will be mixed up, and I won’t be sure I am getting the results I am after. To explain this, let’s say strategy 1 triggers a long signal. If the next signal I get is an exit signal from strategy 1, then everything is fine. But if the next signal was, instead, an entry signal from strategy 2, then the entry price and average cost of the position is different than what I intended (I don’t want the signals and the positions to get mixed up).
I believe the solution, somewhat cumbersome, is to open 3 different accounts with my broker. But before doing that, I wanted to know if there is an easier solution.
To answer Rod’s question most directly, the solution may be sub-accounts. Some brokers, such as Oanda, allow you to create sub-accounts within your one brokerage account. This allows you to run separate strategies with their own easily trackable transaction and performance records. That would be my first choice way to go.
Now, having said that, I want to make two points.
First, no matter whether you’re trading one account or multiple accounts and/or sub-accounts, you have to remember to think in terms of aggregate risk. Make sure you do not allow yourself to get into an excessive exposure situation. By that I mean something like having full-sized USD longs in all your accounts because the systems all have a long signal at the same time. A situation like that could see all your accounts hit at the same time and a loss multiples bigger than your general risk management philosophy would normally permit.
Second, keep in mind that no matter how you break out accounts or sub-accounts, the math all adds up the same. If you get long GBP/USD at 1.50 in one account and get long GBP/USD at 1.51 in the same size in another account, it’s exactly the same as if you did those two trades in one account. Granted, you’ll see differences in average entry prices and things like that, but if you keep good records of your trades outside your brokerage system – which you always should (see this story of broker fraud) – then you’ll know what each system is doing and how it’s performing.