Home Trading Strategies Why You Should Trade Multiple Trading Strategies (And How)

Why You Should Trade Multiple Trading Strategies (And How)

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Why You Should Trade Multiple Trading Strategies (And How)

hey hey what’s up my friend so in today’s episode right i want to share with you on why you know you should trade different trading strategies or rather why should you adopt multiple trading strategies now don’t get me wrong i’m not asking you to system hop i’m not asking you to you know uh trade everything and anything i’m not asking you to you know try everything out there like it’s a buffet no before we even get to that point right you first and foremost must master a trading methodology you must have like you know a break and butter trading strategy right something that you have already found success with and once you have found success with it right and then if you want to level up to the next stage of your trading career then that’s where you might want to consider trading multiple trading strategies why is that and the reason is quite simple actually is because different trading strategies they they excel in different market conditions take for example trend following when does it make money when the market is trending duh right so that is the uh the power of trend following it makes money during strong trending markets now what about say uh mean reversion trading when when does this type of strategy know make money well when the markets are a while when you have you know swings up and down those are uh good market conditions for mean reversion trading strategies and you see my point right different trading strategies they excel in different market environment and here’s the thing the markets out there it’s always changing right it goes from a period of low volatility to high volatility uptrend downtrend et cetera so this is why you want to adopt multiple trading strategies there are numerous benefits to it right and let me explain to you what they are number one first and foremost you get to reduce your drawdown so let’s say for example you are trading uh just one trading system and based on your historical testing or based on your own trading experience you know the maximum drawdown is let’s say a 40 maximum throwdown okay but if you let’s say now trade two different trading strategies and they are uncorrelated with one another let’s say the first strategy the original one is in a drawdown let’s say it’s in a 30 drawdown the second strategy might not be in the drawdown because it’s uncorrelated to the first strategy right that strategy might be up let’s say uh uh 30 for example so one strategy is down 30 the other one is up 30 and if you combine the two of them right let’s say you allocate a 50 of your capital to each of these two strategy the overall drawdown of your portfolio right meaning that your capital when you trade both trading strategies your overall drawdown is actually zero percent because one is down 30 the other strategy is up 30 overall your method it’s zero percent so you’re pretty much at break even so this is what i mean by you get to reduce your overall drawdown because of trading uh multiple trading strategies benefit number two is that your returns right are less lumpy what do i mean by lumpy so if you trade one strategy only let’s say it’s a trend following strategy and markets goes into a nice strong trend your returns can go like you know spike up pretty quickly but when market stops trending you can see that the returns collapse down equally fast as well that’s normal right because the market conditions has changed so your returns in a way it’s quite lumpy you know it spikes up down up down very lumpy very volatile to say but when you again trade multiple trading strategies which are uncorrelated with one another your returns right it gets much more smoother so instead of going zigzag up down it goes like much smoother you know the uh the spikes right the ups and up and down spikes are less pronounced so in a way your portfolio value is growing at a much more steadier pace right so that’s what i mean by your returns will be less lumpy and another benefit is number three diversification because here’s the thing right no matter how good a trading strategy or system that you’re trading you just have no idea you know when that system when that strategy will break down or when you will enter a drawdown so if you take for example warren buffett that’s of itself right now i check he has about holdings of about 50 stocks out there right he’s diversifying his like capital his portfolio into this 50 different stocks right no matter how good he is as a value investor all right no matter how much he scrutinized the balance sheet the cash flow right he still diversifies his stock holdings because he is never too sure if you know that one stock that he buys right might just collapse or go bankrupt because of certain reasons that he can’t foresee and it’s the same for trading right when you trade multiple trading systems you get a diversified right your money across these different systems spike some might not do well some might do well some system might go bonkers but hey you might have some that you know do very well so that kind of you know smooth out your overall returns smooth out your overall equity curve as well does it make sense so just a quick tip to share with you how you can actually go about uh discovering new trading strategies or systems again the best way in my opinion at least is that to actually read no books study webinars from you know traders that have a proven track record so i like to study traders that like to share their ideas their systems right and they actually provide the back test results that come along with it because the hard work is kind of like you know done for me all i need to do is just take the system that they have shared tweak it to my own uh my own preference right and do the back testing and see how the results have fair where is it similar to what they have shared or not so go and study books out there there’s a lot of books all right if you want to learn more about trend following you can study uh stocks on the move by andreas kleiner you can study following the trend you can study another one a trend following by michael covell if you want to learn about mean reversion trading i think there’s one by howard b bendy uh larry and cesar alvarez they have books on mean reversion trading as well so a lot of stuff out there right it’s all depending on you how much you want to you know absorb all right the stuff is out there it’s all dependent on you on how much you really want to take it in all right so with that said let’s do a quick recap right number one uh the reason why you wanna trade multiple trading strategies is because of a few reasons all right and number one you reduce your overall drawdown your overall maximum throwdown number two your returns will be less lumpy your overall returns becomes much more smoother and finally number three you get the benefit of a diversification because at any one point in time you never know who might do well and who might you know not do as well so that’s a kind of a form of diversification for you so with that said i have come to the end of today’s episode and i will talk to you soon you

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