Monday, September 7, 2009

Volatility settles down

I've been looking at a few daily charts of volatility, as measured by a 14 period Average True Range.  Here's EURUSD as an example.

Interesting to see how much the volatility exploded with the GFC.  It hasn't quite settled down yet, but at least the trend is down, and it could meet the long term gradual rise quite soon.  It makes me realise how much the forex market behaviour has changed over the last year.  Will a system backtested as profitable through that timeframe still work well in the future?  Is it possible and desirable to adjust for volatility, eg by using ATR based stops instead of simple point multiples?

Note to self:
  • Treat August 2008 to February 2009 as an atypical timeframe, and expect unusal system behaviour during that time.
  • Try optimising from, say, January 2004 to July 2008, and compare with August 2008 to February 2009, and March 2009 to present.

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