Trade loosely correlated WealthSignals systems for stable growth

Trade loosely correlated WealthSignals systems for stable growth

Even the best system experiences drawdowns, and as traders we’re worried about the irregularity of our returns. It’s tempting to cancel subscription when the fortune turns away from us but it may end up displeasing to see the missed profits when the system returns with a vengeance. And if has a solid mathematical expectation, chances are in its favor.

We touched this subject in another article, When a mechanical trading system is having a drawdown what do you do? This time let’s approach it from a different perspective. Portfolio diversification comes to help here as the natural tool of risk reduction. The idea is to add another, carefully chosen system to trade to smoothen our equity curve.

When properly applying this technique you can benefit from different systems responding differently to different market conditions or from trading different assets. Like with a portfolio of stocks, the idea is to choose another system that rises or falls at different times from your “primary” subscription.

Suppose you’re subscribed to ETF Pairs Arbitrage whose equity curve is underwater after making an all-time high in May:

ETF Pairs Arbitrage - Mechanical Strategy

A quick inspection of other systems’ equity curves on the “Find a Strategy” page suggests that there are other candidate systems still making money. Take Saltamontes, for instance. Its equity curve has been on a steady rise, with ups and downs spreaded differently from the “EPA”:

saltamontes - Mechanical Stock Trading System

A choice of systems like this makes sense because they tend to support each other. What you have to care about is to avoid systems having a perfect negative correlation or it would be a zero sum game. If one system goes up 5% while the other loses 5%, there’s no benefit from diversification.

In this article there’s no room for discussion of complex concepts like correlation coefficients, covariance or efficient frontier. It’s a simple trading idea and should stay so. The takeaway is that it may be possible to achieve diversification through subscribing to loosely correlated systems to smooth out our returns.

Which online stock broker should I use?

Which online stock broker should I use?

If you’re considering subscribing to a WealthSignals strategy, you may be on your way to becoming a self-directed trader (or Do-It-Yourself trader). You will be joining a fast growing trend in stock market trading. The availability of quality online resources from how-to knowledge-bases to point and click stock purchasing, makes becoming a DIY trader the next evolutionary step in stock investment management. In this process, one of the roles WealthSignals plays is robo advisor: You subscribe to a trading strategy that best fits your style and risk profile, and trade the signals the strategy provides – no guesswork on your part.

Which brings us back to the question of which online stock broker should you use. Assuming you intend to follow a WealthSignals strategy and trade its signals, then you wouldn’t require a Full Service Stock Broker. You can take advantage of the low cost or discount broker. A discount broker provides the service of stock buying or selling at a reduce commission rate. As opposed to a Full Service Broker which charges a higher commission but also provides their customers trading advice which, in the case of using WealthSignals, you won’t need.

Self-directed investing stats

How low can the buy and sell order fees go?

This might be hard for you to believe, but if you were a subscriber to ETF Pairs Arbitrage or ETF Gold, you could use an online broker called Robinhood and pay zero fees and zero account setup. This fast growing company provides their ETF, i.e. Exchange-Traded Funds, buying and selling service commission free. Like other internet business models, they believe enough of their members will end up buying their paid services and offset their cost of giving this service away for free.

How easy is it to use a discount broker?

In the case of Robinhood, like many other, it’s as easy as installing an app on your phone. Register, setup and fund your account. A buy or sell order can be place with as little as three or four screen touch gestures. Of course all of these online discount brokers have full websites for their customers which one is the easiest to user is up for debate. Check our our referral links below for comparison and more information.

Who’s the most trusted online discount broker?

Fidelity Investments, founded over 70 years ago, is one of the largest asset managers in the world. Fidelity has a very comparable online discount broker service with stock trade commission at $4.95. If you find yourself in need of assistance you’ll find it. There is no better company for customer service. And, if your account qualifies you can automate your WealthSignals orders or alerts from your own strategies using Fidelity Wealth-Lab Pro! Indeed, most of the strategies on WealthSignals are created and supported using Wealth-Lab.

For more information on online discount broker and DIY trading:

Comparison discount brokers

Review of Fidelity as a discount broker

Wealth-Lab Pro for U.S. Residents:

Wealth-Lab Developer for international users:

self-directed investing

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WealthSignals™ information is based on hypothetical performance results which have certain limitations. They do not represent actual trading and therefore do not have financial risk. Any interpretation of data presented that leads to an investment is at your own risk and WealthSignals™ or its affiliates will not be responsible for any losses that occur from such investments. Past performance is no guarantee of future returns.