Wednesday, December 12, 2007

Free Expert Advisor Portfolio 1 , Week 2, OUCH !

After two weeks of trading things have turned a little sour. All expert advisors showed a classic behavior yesterday when the news release (interest rates) contradicted general market expectations.

As you know, based on the efficient market hypothesis, prices reflect what the majority of the market believes before a news release. Therefore, prices aligned for the effect a 50 point cut in interest rates (US) would have had, that is, an adverse effect on the US dollar. The expert advisors did the same thing, they all positioned themselves against the dollar expecting what everyone else did.

Then, everything turned black. As the news release announced a dovish 25 point cut, the dollar rallied against other pairs, such as the GBP which is the main pair acting in our first expert advisor portfolio. This resulted in massive losses, almost a 20% drawdown. Now everything is better though, the expert advisors have since recovered most of the losses and are almost up to the original 10,000. As always, you can check the statement here. I hope there is a better week ahead of us !

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