What Should Have Been

Sept. 14, 2022

Too many cooks spoil the broth.

In everything.

What happens when you take a young tennis player who makes a Major final in 2021 and then hires six different coaches in six months? You get disaster. You get a U.S. Open champion who’s fallen to 85 in the world just one year later.

It’s no different for trading.

If we want life-changing results, we can’t diversify. Diversification is a deadly form of futile reassurance.

And every elite trader that’s posted eye-popping results does not diversify.

But what does that mean exactly?

Too much diversification is trading 500 stocks, like the S&P 500. But there is also too little.

Just trading one stock is too little. No superstar trader just traded one thing.

Normally, they trade around 4-10 stocks at a time. But no more.

I’ve been a big proponent of focus. I like the math and I like to get to know a system intimately. But, although I was extremely picky about who I taught in my tennis career, I didn’t teach just one person. I taught a small handful.

That seems to be an optimal recipe for success across the board.

Unfortunately, I’ve traded a “portfolio” this year that’s way too focused. I have about 20 different systems that show great testing. While that’s too many, I’ve traded too few.

Here’s what I should have done.

I should have picked at least 3 different systems and traded those aggressively. How does a trader choose? By thinking it through.

In theory, if we trade systems that trade differently, we should make more money and have a better equity curve. I have systems that trade before 12 pm ET (the Fx market surprisingly acts just like the stock market in the mornings), systems that trade all 24 hours, systems that trade on the 15-minute charts, and systems that trade long-term charts (4-hour or Daily). And more.

Finding a mix of those should do better than trading just one.

Because trading just one leads to nightmares when the market throws an awful trading regime at us.

So, here’s a possible solution.

I should have traded:

• One system that trades indicator breakouts before noon ET on a 15M chart.
• One system that trades Bollinger Bands™ all day long (avoiding the chaos of the stock market open) on a 1-hour chart.
• One system that trades pure breakouts and is based on the timeless principle of the Turtles.

That seems to cover a lot of bases. One or more of them should work when one is stuck in a disgusting market environment.

Did it work? Is it diversified enough?

We’ll talk about that in our next Newsletter.

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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.