Why Run More Than One Trading Strategy?

Running more than one trading strategy can make the ride smoother, because strategies that trade different markets or follow different rules rarely have their worst weeks at the same time. In AlgolaneBots's historical backtests, mixing each US strategy 50/50 with the Gold Breakout strategy reduced the worst fall in every case, but it also reduced the yearly result. Diversifying strategies trades some upside for steadier behaviour; it does not remove risk.

What diversification means for strategies

Most people know the idea of diversifying investments: do not put everything in one stock. Diversifying strategies is the same idea one level up. Instead of spreading money across assets, you spread it across rules.

There are three main ways strategies can differ:

• Different markets. A gold strategy and a US stock strategy are driven by different forces much of the time.
• Different logic. A trend-following rule and a mean-reversion rule often disagree about the same market.
• Different timing. A strategy that checks every hour, one that checks daily and one that rebalances monthly will react to the same event at different moments.

The more ways two strategies differ, the more likely they are to lose money at different times. That is the whole point.

Why it helps: correlation in plain English

Correlation measures how closely two things move together. If two strategies rise and fall on the same days by similar amounts, they are highly correlated, and running both is barely different from running one twice. If one often holds steady or rises while the other falls, they have low correlation, and combining them smooths the total.

A simple illustration with made-up numbers:

Neither strategy alone avoids a bad month, but the mix never falls as far as Strategy A's worst month. That is the effect diversification aims for. Note that the mix also never rises as far as Strategy A's best month.

What the backtests showed

AlgolaneBots's facts include an example 50/50 mix of each US strategy with Gold Breakout, rebalanced monthly. These are results from historical backtests, computer tests of the rules on past prices. Nobody earned them, and future results will differ. Each mix is an illustration from the backtest, not advice.

For Gold Breakout on its own, at 2% risk from June 2004 to November 2026, the backtest showed +15.1% a year with a worst fall of 41%, against +11.0% a year and a worst fall of 45% for gold held.

Each strategy's caveat applies to its mix:

• Leveraged Growth: its rules may be fitted to the years after 2010, and leveraged funds can lose value quickly.
• Market Switch: nearly half of its tested profit came from UVXY, and it failed outside the US.
• Big Tech Trend: its stock list was chosen with hindsight; three stocks made 81% of the profit.
• Steady Growth: its seven names were picked because they already did well, which flatters the test.
• Gold Breakout: doubling trading costs cuts its yearly result roughly in half.

Reading the table honestly

• The biggest reduction in worst fall came where the strategy was most volatile. Market Switch's worst fall went from 42% to 26%; Leveraged Growth's from 53% to 39%.
• The smallest reduction came where the strategy was already steadier. Steady Growth went from 20% to 19%, and Big Tech Trend from 29% to 28%. When a strategy's falls are already modest, adding another strategy has less to smooth.
• Yearly results dropped in every case. Mixing a higher-return strategy with a lower-return one lands somewhere in between. Diversification buys smoothness with return.

When strategies fall together

Diversification has a well-known weakness: in severe crashes, many things fall at once. Looking at crash periods in the backtests shows both the benefit and the limit.

In 2008 and 2020, Gold Breakout fell far less than the stock strategy, which is when a mix helps most. In 2022, both lost money, and Gold Breakout actually fell more than Steady Growth. Recovery times also differed: in 2022, Steady Growth got back to its pre-crash value in 2 months and Gold Breakout in 9, while the S&P 500 took 23 months and gold held took 11.

The lesson: two strategies in different markets will not always protect each other. They are less likely to have their worst stretch at the same moment, not guaranteed to avoid it. Our post on what rule-based strategies do in bear markets looks at this further, and gold vs the S&P 500 in crashes covers the gold side.

Why rebalancing matters

A 50/50 mix only stays 50/50 if you rebalance. If one strategy doubles while the other is flat, the mix becomes roughly two-thirds and one-third, and the account is now mostly exposed to the strategy that just ran up.

Rebalancing on a schedule, monthly in the backtest examples above, sells some of the winner and adds to the laggard. It is a built-in discipline that keeps the risk close to what you chose. It also has a cost: every rebalance is a trade, and every trade has a cost. The weekly rebalancing post discusses how often is often enough.

The behavioural benefit

There is a second reason to run more than one strategy, and it has nothing to do with maths. Most damage to real accounts does not come from a strategy's worst fall itself. It comes from the owner abandoning the strategy partway through that fall and never benefiting from the recovery.

A mix that falls 26% instead of 42% is easier to sit through. When one part of the account is having a bad month, seeing another part hold steady makes it less likely you will switch everything off at the worst moment. That effect does not show up in a backtest, because a backtest never panics. It shows up in real accounts.

The flip side is also true. In a strong run, a mix will lag its best part, and it is tempting to drop the laggard and pile into the winner. Doing that usually undoes the diversification exactly when it is about to matter.

What diversification cannot do

It is worth being clear about the limits, so the idea is not oversold.

• It cannot turn a weak strategy into a good one. Combining two strategies with no edge gives you a smoother version of no edge.
• It cannot remove market risk. If everything you hold depends on the same broad economy, a deep enough shock will hit all of it.
• It cannot make backtest results more reliable. A mix of two backtests inherits both sets of caveats. If one strategy's results were flattered by hindsight, the mix is flattered too.
• It does not lower costs. Two strategies mean more trades and more rebalancing, and every trade has a cost.

Diversifying badly

Some combinations look diversified on paper but are not.

• Two strategies that hold the same things. If both mainly hold leveraged Nasdaq funds, you have one bet in two wrappers. Leveraged Growth and Market Switch both use leveraged US funds, so they may move together more than a stock strategy and a gold strategy would.
• Too many strategies to follow. Each one you add needs to be understood and monitored. Five strategies you understand beat ten you do not.
• Adding a strategy only because it recently did well. That is recency bias, and it tends to add risk just before a turn.
• Ignoring the rest of your money. If your other investments are already heavily in US tech, a tech-focused strategy adds concentration rather than spreading it.

How to think about a mix

There is no correct number of strategies, and AlgolaneBots does not recommend a mix for anyone. Some questions that help:

1. Do the strategies trade different markets? Gold and US stocks often behave differently.
2. Do they use different logic? Trend following, breakout and rotation each fail in different conditions. See momentum and trend following.
3. Did they have their worst falls at different times in the backtest? Check the crash periods, not just the long-run totals.
4. Can you live with the lower upside? A mix will usually trail the best single strategy in a strong run.
5. Can you run it practically? Gold Breakout runs through MT5 in your own terminal; the US strategies run through Alpaca. Running both means two setups.

Key takeaways

• Diversifying strategies works when they lose money at different times, not just because there are several of them.
• In historical backtests, every 50/50 mix with Gold Breakout had a smaller worst fall than the US strategy alone, and a lower yearly result.
• The biggest smoothing came where the original strategy was most volatile.
• In some crashes, such as 2022, different strategies still lost money together.
• Rebalancing keeps a mix close to the risk you chose, at the cost of extra trades.
• Strategies that hold similar assets add less diversification than they appear to.

Run several side by side

On paper, you can run all five strategies at once and see for yourself which ones move together and which do not. The free 90-day trial gives you a $10,000 paper account with real prices and no card needed. Start here. This is general information, not personal advice; see the risk notice.