Strategies from trading books or FX trading seminars often advocate one strategy as the holy grail, backed by years of research. Even with expert advisors, automated traders mostly trade just one robot, albeit across currency pairs. While this can be profitable over the long term, it does not protect you from near term drawdowns from changing market conditions.

There are 2 camps when it comes to forex trading strategies – Trend Following and Mean Reversion. In a sideways market, trend following strategies suffer losses and in a trending market, mean reversion strategies get hit. Many traders make the mistake of giving up too early on their strategies once they see a string of losses. These could be attributed to market conditions rather than the strategy itself. Take trend following for example, markets only trend 20% of the time, so for the most part trend traders are hitting stop losses, waiting for that trend to ride.

At Streetpips.com we have expert advisors from both camps. We were curious why our mean reversion strategies underperformed the past month. Looking at the currency charts it became obvious to us – August/September was a trending month for many of the major pairs:

USDJPY Bloomberg Chart of Past 6 Months

NZDUSD Bloomberg Chart of Past 6 Months

USDCHF Bloomberg Chart of Past 6 Months

EURUSD Bloomberg Chart of Past 6 Months

AUDUSD Bloomberg Chart of Past 6 Months

A multi-strategy portfolio comprising both trend following and mean reversion strategies can better weather changing market regimes. The benefit will be more stable earnings with reduced volatility. On a portfolio basis, drawdowns will also be lesser. Last but not least, a balanced portfolio reduces the emotional impact and stress on a trader towards more sustainable trading. Multi-strategy portfolios for the retail trader are best executed using robust expert advisors, because the human mind can only handle that many strategies concurrently.