DAY 52: Portfolio Design – EA × Discretion, Short-Term × Mid-Term Combination

On DAY 51,an overview of risk managementwas organized to confirm the importance of elements such as capital management, setting stops & targets, adjustments by market environment, and correlation measures for multiple positions.
DAY 52and today,Portfolio designis our theme, explaining the merits and cautions of combining multiple methods and timeframes, such as “combining EA with discretionary trading” and “operating short-term and mid-term simultaneously.”
Relying on a single method tends to cause larger drawdowns when the market doesn’t fit, but with a portfolio mindsetportfolio mindsetand by combining multiple methods, currencies, and timeframes, stable profits become more attainable. However, be mindful of correlation risk and the complexity of management.

1. Why is portfolio management effective?

1. Complementing strengths and weaknesses across strategies

   • A method that struggles in a certain range market can be covered by another range-specialized method.
   • If one is trend-following, another can be range-trading to strengthen resilience to changing market conditions.

2. Reducing correlation risk

   • Diversifying currency pairs and timeframes makes it more likely that other strategies can offset a breakdown of one trend.
   • Including both EA and discretionary trades and adjusting so that positions don’t all move in the same direction reduces the chance of a single massive loss.A simultaneous large lossis less likely.

3. Pursuit of stable returns

   • To avoid the “optimization trap,” running multiple methods in parallel tends to be more stable in the long termmore stable in the long term.
   • If one method underperforms, another can still perform well, smoothing the capital curve and providing mental comfort.

2. Examples of portfolio combinations

(1) EA (trend-following) + discretionary (range reversal)

1. Philosophy
   • EA captures trend markets automatically, while discretionary handles range assessment and abrupt changes.
   • During trends, EA does most of the profit; when ranges persist, discretionary reversal trades fill the gap.
2. Cautions
   • Correlation risk: if EA and discretionary positions in the same currency direction accumulate large total lots, manage to keep it in check.
   • Timing for ON/OFF switches: in indicators where EA struggles or during late-night hours, switching to discretionary requires clear rules.

(2) Scalp (short-term) + Swing (mid-term)

1. Philosophy
   • Capture small price movements with scalping while aiming for bigger trends with longer holdings.
   • Scalping alone can be stressful; swing alone can be dull or miss opportunities. The ideal is to do both.
2. Cautions
   • Time management: when focused on scalping, continuously monitor charts, while swing positions can move during sleep.Mental loadto consider.
   • Market environment: setups for scalping (e.g., 1-minute/5-minute) and swing (4-hour/day) can have opposite entry rationales.
   • If holding the same currency pair with scalping and swing, calculate so that total lots don’t become too large.

(3) Currency diversification: major currencies + cross yen + commodity currencies

1. Philosophy
   • In addition to dollar-denominated pairs, include cross-yen pairs like EUR/JPY, GBP/JPY, and commodity currencies such as AUD/USD to capture opportunities across the market.
   • If the market isn’t dollar-driven, commodity currencies or cross-yen may move more.
2. Cautions
   • Correlation management: holding many positions in the same direction (e.g., EUR/JPY buy, GBP/JPY buy, AUD/JPY buy) can be devastating if the yen strengthens.
   • Because you need to monitor each indicator and political risk,be mindful of information-gathering costs.

3. Thinking about risk allocation

1. Decide lot sizes with maximum drawdown in mind

   • Example: “If my capital drops by 30%, I cannot mentally endure it.” If running multiple strategies simultaneously,allocate lots so total drawdown does not exceed 30%..
   • If Strategy A alone can draw down 20% and Strategy B alone can draw down 20%, be careful not to exceed a combined 40% drawdown.

2. Distribute loss tolerance percentages across strategies

   • Example:
     • EA Trend Following→ allocate 40% of funds
     • Discretionary Scalp→ allocate 30%
     • Swing positions→ allocate 30%
   • By dividing capital this way and adjusting lots per account,the risk of the entire funds collapsing if some accounts failis reduced.

3. Emergency stop rules

   • If a streak of losses or drawdown reaches a threshold,pause that strategy temporarilyand analyze the causes.
   • If other strategies are running concurrently,the overall profit does not drop to zero, which is an advantage.

4. Case study: D’s portfolio

1. Composition
   • EA1 (trend following): operates on USD/JPY, EUR/USD, aiming for breakouts on short-term charts.
   • EA2 (range reversal): primarily GBP/USD, Bollinger Bands + oscillator conditions.
   • Discretionary swing: review charts weekly and target holding AUD/JPY and EUR/GBP for 2–3 days to about a week.
2. Risk distribution
3. Results

5. Summary & next steps

Summary

1. Portfolio design: By combining multiple methods (EA × discretionary, short-term × mid-term, major currencies × cross yen × commodity currencies), you can operate robustly across changing market conditions.
2. Risk allocation: Ensure total drawdown does not exceed your tolerance by allocating funds to each method. Lot management and emergency-stop rules are essential.
3. Cautions: Do not hold combinations with high correlation risk at once; prepare for increased information-gathering costs; avoid over-diversification that prevents monitoring.

Week 8: upcoming flow

• DAY 52 (This article) focused on portfolio design.
• DAY 53–55 will cover overall funding operation plans and annual target setting, exploring longer-term risk management & sustainable methods, tying into WEEK 8’s overarching theme.
• Ultimately, you will outline “your own trading end-state” and summarize how to operate the elements learned (validation, psychology, market environment adaptation).

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