Recently, I received several questions as to why an ATS trader should also spend time developing swing strategies (and not just intraday trading strategies). In this article, I would like to summarize the most important points why I consider it important to also have swing systems in a portfolio.
1. Swing strategies are a great way to diversify a portfolio.
Struggling with a high correlation of strategies is quite challenging – every advanced ATS trader, at least a little bit, knows that it is not so easy to discover low correlation strategies with the existing portfolio. I have also struggled with this problem for a long time until I added swing strategies to my portfolio.
It makes sense: swing strategies stay in the market longer (mainly several days), so the profit distribution can be dramatically different from intraday strategies and therefore we can achieve a lower correlation. And only the combination of intraday and swing strategies I consider sufficient diversification. Having only intraday strategies in a portfolio is somewhat limiting, as we are losing various benefits that come from holding positions for longer.
2. Swing strategies have a greater reduction, but actually help you reduce the reduction.
Beginning traders are often afraid of the bigger drawdowns that swing strategies often have. However, this is just an unfounded fear that comes from the inability to see the big picture. Once you start to look at it from a broader perspective, you will find that individual strategy drawdowns don’t matter; what matters is the reduction of the entire portfolio, and that can be reduced by adding low correlation systems to your portfolio (it is also equity smoothing). This brings us back to the first point: low correlation is important for many reasons and the more colorful the portfolio is, with low correlation systems, the more stable the equity will be and the less drawdowns it will experience. Personally, I know a trader who is willing to start trading on a losing system, as long as it has a low correlation with other systems and smooths the capital and reduces the reduction of the entire portfolio (yes, this is how it really works!). This is just another confirmation that focusing on a single strategy reduction is too shortsighted and you need to take things into perspective. You should definitely experiment with swing strategies for this reason as well: working on correlation and a portfolio is something that moves us forward and swing trading is part of it.
3. It is impossible to create a system in some markets (except for swing strategies)
Another strong reason to add swing strategies to your portfolio is that in some markets you will not be able to create a day trading strategy. This is how it is and if you don’t add swing strategies to your portfolio, you are limiting yourself and your trading business is only running at 50%, rather than 100%.
Trading in as many different markets as possible is another great way to diversify your portfolio and another solution to fight against highly correlated systems. You should also consider investing time: why spend hundreds of hours in a given market, trying to find an intraday strategy, when you can create a swing strategy for a market that is not suitable for intraday systems, in a fraction of the time. weather? From my point of view, it is really pragmatic and necessary to add them to your portfolio. In our database, we have more than 400 trading systems, and more than 60% of them are swing.
4. Swing strategies greatly increase your average trade
Sometimes you can experience nasty slippage (especially when the markets get really wild) and if your strategies have low average trade it can have quite a negative impact.
With swing systems, this is no longer a problem. In most cases, you will have a really high average trade and rarely bother with transaction costs, and that will give you more peace of mind and an option to breathe freely and stop worrying about things like slippage.
Below is an example of one of my systems for natural gas:
Symbol = @ NG
TF = 30 M
Package =! MDP_dpmode-0_trailSL-0
NP (USD) = 76,230.00
NoOfTrades = 447.0
AvgTrade (USD) = 170.54
ProfitFactor = 1.52
MaxDD (USD) = 10,640.00
The 170 USD average trade is simply so big that it can really support a lot and the strategy will still be profitable. One more reason why I consider it important to include swing systems in your portfolio.
5. Swing strategies open up many new possibilities
The last reason to include swing trading is basically a summary of all of the above:
Without swing strategies, you are leaving too many possibilities behind. You are not using the world of automated trading as much as you could and you are leaving too much money on the table. The world of swing trading is worth exploring and you should spend some time on it. Just because you don’t need to learn a lot of new, just a few small, but very important things, and the impact can be really huge.
So much for the reasons why I consider the idea of ​​broadening your trading horizon to swing strategies to be not only good, but in many cases really essential.
Happy trading!