Recently I received the following question: “You suggested that we should have 2 or 3 systems to trade. Why?”
Trading more than one system smoothens your equity curve. You should at least trade 2 systems: A trend following system in a trending market and a trend-fading system in a non-trending market.
Take a look at the following example. Below you see an equity curve of our trend-fading system CoinCollector for the e-mini S&P:
Because of its characteristic the system does not perform very well in trending markets. That’s when you see the dips in the equity curve.
If you combine this system with a trend-following system for the e-mini DOW, you receive the following equity curve:
The equity curve looks much smoother.
Now let’s take a look at some performance measures:
| Measure | Coin Collector | Coin Collector and DOW | Difference |
| Net Profit | $23,200 | $28,955 | + 24.80 % |
| Average Profit per Trade | $37 | $36 | – 0.97 % |
| Max Drawdown | $1,963 | $1,688 | – 14.00 % |
| Profit Factor | 1.60 | 1.70 | + 6.25 % |
The net profit increases by 25%, and the max drawdown decreases by 14%.
But keep in mind: more is not always better. Here’s what happens if you combine 2 trend-fading systems:
| Measure | System 1 | System 1 & 2 | Difference |
| Net Profit | $17,738 | $24,028 | + 35.46 % |
| Average Profit per Trade | $328 | $243 | – 25.91 % |
| Max Drawdown | $2,775 | $2,775 | 0 % |
| Profit Factor | 2.63 | 2.32 | – 11.78 % |
In this example you increase your net profit, but the average profit per trade and, therefore, the profit factor decreases. The goal of combining 2 systems is to increase reward (=net profit) while decreasing risk (=max drawdown and profit factor). The combination of these 2 systems fails to achieve the goal.
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