YouTube video by Adrian Reid (founder of Enlightened Stock Trading) examining whether to add another trading system to a systematic trading portfolio. Reid frames the trade-off between diversification and over-diversification, emphasizes that the chief requirement before adding systems is executing current systems smoothly (mistake-free, confident, low-stress), and discusses how the added system’s activity profile (e.g., short-only vs long-only) affects daily workload and mistake risk.
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Diversification is one of the most important things you can do as a trader. But can you have too much diversification? My name is Adrian Reed.
I'm founder of Enlightened Stock Trading.
And in this video I'm going to talk about whether or not you should add another system to your portfolio. Or is it possible you've already got too much diversification? This is one of the most important considerations when you're trading systematically. Because if you get to a point where you got too many systems, can things go wrong? Yes. But if you don't have enough systems, can things go wrong? Yes. You need to find the sweet spot in this video. I'll show you how. But before we go any further, make sure you hit the subscribe button and give this video a thumbs up so that you get notified of all of my future videos.
Because I've got new trading content coming.
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The question is, at what point does adding another system become too much and start causing more problems than it solves? And this question, the answer to this is going to be a little bit individual because it's going to depend on you, your routine, your capacity, and various other things. Here is the number one requirement for adding a new system. In order to add more, you must be executing your current set of systems smoothly, mistake free, with confidence, without stress. If you're feeling stressed and anxious about the level of activity that you're having to do each day, and you add another system that adds more activity on the same days, this is important as the existing systems. You're going to start making mistakes because your stress levels will rise. But let's say you have a whole bunch of long systems and they are in the market during a bull market. And then you add a short system that's only in the market during a hammering bear market, you're not really adding much activity. So therefore you're not really contributing to increased stress levels and mistakes.
So think about what you add and how that will affect your daily routine, how that will affect your ability to follow the rules consistently.
First, because if you're going to add a system and cause mistakes everywhere, that's a big problem. It's not worth the diversification.
If you can add some systems.
Without ruining your routine and without making mistakes, then think about the market system map and think about where you are making money, where you are losing money and where you've got nothing. And add the system that will give you the best improvement in your ability to make money over a range of market conditions.
