Q: VT talks about having several well researched, non correlated trading systems. I have been trying to figure out what instruments are not correlated with each other. So far, those I’ve thought of appear to be inversely correlated with each other, or in some way related to each other.
For example, when USD goes down, Gold goes up. When oil goes up, stocks go down. So if I have systems that trade both USD and gold, it seems that what I have are 2 systems that are inversely correlated to each other.
Could you give me an example of systems which are non correlated to each other?
A: You are confusing trading systems with markets. They are not the same. However, you could have a long term trend following strategy that trades oil and stocks. Your strategy (which is what I’m talking about) would be the
same in both markets, the results would be different. What you are looking for is non-correlated strategies.
Even market types (up-volatile vs down quiet) are not the same as markets. Thus if you find a system that works in a volatile quiet market (i.e., some option strategies such as a calendar spread), it will not be correlated with one that works well in a long term bull (volatile or quiet) environment (i.e., my efficiency strategy). Similarly, there are swing trading strategies that work in most environments that have little relationship to long term buy strategies or long term shorting strategies.
You can even think of the market as a sine wave. Some strategies work well when the trend is underway. Other strategies try to get onto the trend when it first starts by picking bottoms, other strategies pick tops and go short, while still other strategies go short when a down trend is well underway. And these sine waves to describe the market can be long term sine waves or very short term (i.e., intraday).