Adrian Reid explains how to decide which trading system(s) to run in a portfolio when multiple systems exist. Key points: you cannot predict which system will make money tomorrow, so allocate capital across systems you trust to be profitable over time; combine different strategy types (trend-following, mean-reversion, short-side) to smooth equity curves and perform across market regimes; systems can include automatic on/off switches (market-regime or index filters) to stop taking new positions or go to cash; diversification across markets (Australia, Hong Kong, US), timeframes (long/short/short-term), and directions helps produce more consistent portfolio returns.
Chapters
So if you've got lots of different systems and some of them are making money and some of them are losing money at this particular moment, which one do you use? Well, the answer lies in the fact that you don't know which one is going to make money tomorrow. What you should, if you've got a system in your portfolio, what you need to know is that you have the confidence that over time, each of those systems will make money and build your wealth. You don't know tomorrow or next week or next month which one of them will make money or lose money. But if all of them will make money over time, they're going to have some volatility, some ups and downs, then they earn a place in your portfolio. What I do and what I'd suggest you think about is allocating some capital to each of them and following all of them so that the equity curves will smooth each other out. So you might have a long side trend following system which makes money in a bull market but goes sideways or has a bit of a drawdown in a bear market. You might have a mean reversion system that, that makes money whenever the market dips and recovers. You might have a short side system that makes money whenever the market collapses. And if you add those things together, you make money under more market conditions. And that's the trick to becoming more consistent in your portfolio, not just having one approach. So I don't choose use this one, turn that one off, because that one lost money. I back test them all and build confidence in them. So I hope that makes sense. But each system may also have an on off switch. So for instance, with a trend following system, you may choose to turn that off if the market, if the index is going down, if the broader market is going down, a market regime filter or an index switch. So it might turn off and go to cash, or it might just turn off and stop taking new positions, but hold existing positions. So the system could turn itself off. But then you keep scanning that system to see if it's turned on again and generated new signals. But diversification is the key here because no one set of rules, no indicator, no system will make money all the time. We want different types of strategies for different types of markets and just combine them all together and follow them. So I trade Australia, Hong Kong and the us. I trade long and short. I trade long term and pretty short term. And in the middle, and with all of those different strategies, it turns out okay, right? Sometimes one system loses money, another system makes money. Sometimes.
All the different systems make money sometimes, but basically evens itself out and they all help smooth the portfolio.
