The USD/TRY/CAD Hedge Carry: Evidence In Favor Of Gradual, Constant Position Building

A few days ago I wrote about my newly adopted approach to building my hedged Turkish lira forex carry trade method, which simply put is the gradual introduction of new funds into the model rather than an all-in-as-available approach (full details of this measured approach can be found
here). Thanks to Friday's market action, I think I have some initial evidence of the superiority of this method.

Despite the bad economic news that came out Friday about non-farm payroll numbers in the U.S., risk appetite did not seem to falter and TRY made a healthy advance against USD. Meanwhile, USD made a modest advance against CAD; since I hold USD/TRY short and hedge it 4:3 with USD/CAD held long, both sides of the carry advanced, so my two active accounts showed improved net asset values.

The older of the two accounts started off under the all-in-as-available approach, in which I plugged all available new funds into the model as soon as they were deposited to the account and as soon as I thought the charts called for it. Thursday night that account was sitting at an unrealized loss of about 9%. By Friday morning, it had swung to a 2% unrealized gain during the part of the morning I was home and watching it, an 11% advance. At the end of the trading day, it retreated to about a 4% unrealized loss.

Meanwhile, my new hedged carry account, which I've been constructing from the beginning with daily, even position entry (regardless of where the charts are at) did not experience as wild of a swing. Thursday evening it was resting within its typical 1% to 2% unrealized gain, and Friday morning it advanced only about 1% more to a 3% unrealized gain. When the trading day ended, this account moved back to around a 1% unrealized gain - where it usually ends up each day.

It is probably too early to tell if this pattern will be common or if this is just temporary, but judging from the wide range the older hedge carry account moved through versus the new one, it does seem that my guess is correct: plugging cash into a hedged carry trade of this sort as it is available, which causes positions to vary widely in size, skews the averaging in ways that makes the fluctuations of the account NAV more severe, which could cause the two sides of the carry to fail to balance each other. I think more instances like this need to occur before I can conclude that this is the case, but as of right now I'd be willing to bet that it will turn out that way.