With this post I want to share some insight about my portfolio setup. More specific I want to talk about the various systems I trade, why I trade those and how I trade those.

The initial question to ask: Why don’t I simply trade my best system instead of potentially reducing my returns by trading a variety of systems

  • Diversification: not all systems work all the time. There are times when certain things simple don’t work as well as they used to be, e.g. short-term mean reversion over the last couple of quarters. So you definitely want to have another trading system not relying on short-term mean reversion in order to survive that period. In my opinion “something” is always working. So the more diversified my portfolio is, the better. Of course one can argue: I only trade what works right now. But this is a whole different topic, how to switch among systems. I prefer to have a set of diversified systems that switch on/off depending on the market environment, e.g. high / low volatility or overbought/oversold market conditions.

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  • Hedge: systems can hedge each other. Think of a long-term moment system that’s always in the market (long only). Markets can become oversold and vulnerable to short-term down movements. During such times a system trading mean-reversion on intermediate-term timeframe can act as a hedge for the long-term momentum system. Again, one can argue to always hedge the long-term momentum system. I don’t like being hedged all the time, e.g. by being long the stocks and short the index, because such a hedge doesn’t have an edge. So having a mix of different trading systems can reduce the volatility in your portfolio equity significantly.

Let me give you an overview about my systems. Bellow’s graphic is divided into two parts: timeframe (daily vs. weekly) and what I trade (stocks vs. indices). Within each of the quadrants you see the corresponding system(s). The blue bubble associated with each system represents the percentage money amount allocated to it.

Weekly vs. daily: my weekly systems are being traded Monday @ OPEN. They mostly capture upward or downward momentum. The most notable thing is that these three systems only produce entry or exit signals. They don’t have the autonomy to define how much they trade. On top of these three “trade signal generators” I’ve put a very sophisticated money management strategy. In my next post I’m going to share some details about it. Daily systems are traded at the close. They capture mean reversion one way or the other by benefiting from market volatility.

As part of my Portfolio Trader initiative I share the trades from two of those systems: “Rotational Momentum” and “Tactical Asset Allocation”. Read more about Portfolio Trader (here).

In case you are interested to trade such a portfolio for your own account or on behalf of your clients, then contact me (hassler.blog (at) gmail.com). I can also develop custom specific strategies that match your personal investment profile.

# Frank