2 systems - 1 market

[zedexer]

Another method used to achieve diversification in a portfolio would be to trade at least 2 systems on 1 market.
One trend following system, that has a longer term time horizon with a second counter trend system to pick up the swings within the long term system.
If its one the same market however two conflicting orders would offset one another taking one out of the market altogether. However looking at it from a systems perspective, i dont want to exit the Long term long just because my short term system has given a short signal. I would want to maintain the Long and still take a short because they are generated by different systems for different reasons. Unless ofcourse i only take additional longs when the long term system is long and visa versa for shorts.
The other alternative is to have 2 accounts so thst one can have a long and a short in the same market. Alternatively one could trade very highly correlated markets. So that the trades wont offset each other.

Does anyone have any other ideas about this?

[gunter]

Alternatively one could trade very highly correlated markets. So that the trades wont offset each other.

Why does it bother you that the trades could offset each other? Even if you trade 2 systems, your market exposure would still be the same. Just keep track of your individual system positions and you should have no trouble trading two systems.

[zedexer]

Not from a trade by trade perspective but from a systems perspective. I wouldnt want to exit a long term trade because a short term system gave a signal. That could effect the expectancy of the long term system.

Gunter i see youre in Johannesburg. Where about in Joburg?

[Cantley]

System 1 is a long term system with an expectancy E1, and can be long, short, or out.

System 2 is a short term system with an expectancy E2, and can be long, short, or out.

In combining the two systems, you'll end up with a componsite system that can be long, short, or out. Let's say that each system only trades one contract for each market - trivial position sizing. Further assume that each system is traded in a separate trading account.

Each trading account gets full advantage of the expectancy of the trading system using that account, yes?

Now, at some point in time, System 1 is taking advantage of a long term uptrend, so it's long one contract in account 1. System 2 is taking some chip shots on retracements, and is occasionally short that same market in account #2.

System 1 is making all of the money one expects it to make in account 1, while system 2 is merrily doing the same in account 2, even though, from time to time, the owner of the accounts is net flat.

So I ask you, what is the difference in trading the two systems in one account vs. two accounts? Do you still see a difference?

Trade well,
Steve

[Paul King]

Since you are talking about 2 completely different systems with different timeframes (and trend is always dependent on what timeframe you are considering) I would treat them completely separately. The long term trend following system will generally have wider stops, smaller position-sizes, longer average trade durations, and lower trade frequency. Simply because the long-term trend is up (for example), it says nothing about the short-term trend in the same instrument and whether it is desirable to have a short-term trade that conflicts with the longer term trend.

If you really want to trade exactly the same instrument with both these systems I suggest you do it in 2 separate accounts so that you don’t have a long-short conflict (i.e. you can be long, long-term with a small position sizes, and simultaneously temporarily short with a larger position size). Alternatively, you could implement one system with one instrument type (equities, options, futures, etc) and another with a different instrument type (e.g. you could be long an equity, long-term, but also own put options on the same equity short term). This kind of decision would depend on your overall systems, the time you have available to manage your trading, and what the available instruments and implementation costs for the different instrument types are with your brokerage accounts.

The important thing is that both systems are complete, are based on sound ideas, you have minimized implementation costs, and you have a plan in place to minimize implementation errors. Obviously if you do trade both systems in separate accounts you need rules for allocation of available trading capital to each system, and how/when you will “rebalanceâ€

[zedexer]

im not sure what your point is.

Yes both are taking there own signals and both are realizing their relative expectancies.

If i were to apply short term signals to the same market as the long term signals the long term system would cease to be a long term system instead it would morph into a hybrid of the short and "long" that may or may not be as profitable as each system respectivley.

ie. a system is only as "long term" as the nearness of the very next trade to the previous trade (all else being equal). Or off course the nearness of the stop loss provided the time frame is sufficiently large.

The problem lies in the inability of both systems to "communicate" with one another, then again this was never intended in their design, hence they should be viewed seperately.

But i get your point. It does get a bit contrived - the whole topic.

I ran some tests and i think im good now. Thanks for your responses!

[zedexer]

Paul the above post wasnt meant for you.
Your mail clarified this for me earlier

[BARLI]

I remember one interview a veteran trader gave, he said about this technique a few words:" Usually I'll put on a long term position and will protect it by day trading in and out once it goes against me". So it kinda makes sence to me, but doesn't he offset his initial long term position by day trading around it? Lets say he put on a long position in Crude Oil at 50$, once it goes to 60 $ , he's happy in the money, but then Petroleum report comes out and its going down 1.5$ so he's day trading around his big Long position by shorting Crude Oil for one day. So lets say his initial Long position was 30 contracts and he shorted (actually offseted) 10 contracts. He's now only 20 contracts Long, to get back on track with 30 contracts, doesn't he have to buy those 10 on the close?

[drm7]

To avoid having short orders unwinding a long-term long position (or vice versa), the trader can do two things:

1. Place the offsetting order under a different ticket number. Now you you have 30 long on ticket #1 and 10 short under ticket #2.

2. Trade each system on a seperate account.

[BARLI]

drm7, thanks that helps !