This episode explores the strategies and experiences of Christian Mayer, a systematic forex trader, focusing on his approach to mean-reversion strategies in currency trading. Against the backdrop of his initial losses using technical indicators, Mayer transitioned to a research-driven approach, emphasizing backtesting and a deep understanding of fundamental correlations between currencies, particularly those linked to commodity exports like oil. More significantly, he discusses his fixed-size position strategy, wide stop losses, and avoidance of compounding to mitigate fat tail risks and black swan events, illustrating this with examples from the 2008 financial crisis and the COVID-19 market downturn. For instance, his strategy involves using stop losses set at an absolute value (in cents) rather than percentages, resulting in wide stops of around 10%, which helps him weather market shocks. As the discussion pivoted to risk management, Mayer highlighted the psychological challenges of prolonged drawdowns, even with a robust backtested strategy. He also shared his experience in the World Cup Trading Championships, revealing how competition incentivizes higher leverage and a more discretionary approach compared to his usual systematic trading. This episode offers valuable insights into the practical application of systematic trading, risk management, and the psychological aspects of navigating market volatility.
