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After several years of ATS trading I came to a conclusion; that there is one thing I was doing wrong. I was trying to make the equity smoother using an “internal” method. And it is much better using the “external” way.

I call it the internal way when you keep changing the strategy code, when you keep manipulating it until you create a nice, smooth equity curve, but also a totally over-optimized system, that fails immediately after you start live trading (and if it does not happen immediately, then shortly after). Most of ATS traders, especially beginners, try to make the equity curve smoother by using these internal methods. Realizing this earlier could have saved me losses from several systems.

The external way is nothing new; it is well-known diversification. The problem is that you keep hearing about this method so often, you tend to ignore it. But when you start seriously thinking about it, you will get the ‘WOW’ moment. It is also something I have posted here many times before, so it shouldn’t be new for you either.

So what is new in this article? I will simply show you real examples on real systems from my portfolio.

Let me start with my BOSS system, which you can download here completely for free. I have been trading in this system for over 6 years. I will take out-of-sample results from this system for ES, YM and NQ markets, that I have been trading live and will make one equity composed of these three systems (this equity is out-of-sample, so it is not as smooth as in-sample). The equity is so-so; the net profit to drawdown ratio is 9.69, which is not so bad, but on the other side, also not so good.

Let’s try another way. I take the best from the three above-mentioned BOSS variants - for the ES market, add a swing version for Russell 2000, and a system for Soybeans. What is interesting about these systems is that that they are low-correlated. I compose all the out-of-sample data together into one equity and the result is now much better. The net profit to drawdown is 18.46 and that is a really huge improvement - and we are still trading just three systems.

Let’s take a look and see if more systems means better. I have randomly picked seven systems from three different market categories (index, bonds, and grains). Some of the systems are highly correlated, some are low. Joining them into a single equity is quite impressive: now we have net profit to drawdown ratio of 29.58 and very nice, smooth equity. All of the underlying data are out-of-sample equity curves. In doing so, we didn’t even have to modify the strategy code and risk overfitting.

(all analysis done in Market System Analyzer)

The conclusion is simple:

  1. Don’t make the systems too complicated. What is important is the robustness test. The equity of the system is acceptable when it looks “OK”; keep the systems simple.

  2. Focus on different markets, different time frames, and different logics - this is what leads to diversification.

  3. Don’t limit yourself in the number of systems. Having more different systems on different markets and timeframes will bring you smoother equity without making any changes in the system itself.

  4. If you have a problem with capitalization, join with someone. I have a couple of students that joined together, they reached really solid capitalization, could afford to build a bigger portfolio, and were able to stabilize their incomes.

  5. Don’t pursue the perfect equity in a single system. That is one of the most dangerous things. Search for perfection in combining many different systems. It is a small holy grail.

Happy Trading!


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What others are saying

"Tomas is one of the most creative traders I know. He is able to generate unique trading ideas and elegant solutions to system development challenges."

Andrew Swanscott,

"Tomas has been a professional trader for more than a decade and I have had the privilege of monitoring his accounts in action since 2006. His systems are performing as some of the best I have ever monitored and executed. I have been in the trading industry since 2002 and worked with many developers from all over the world. Tomas is definitely the one to consider."

Martin Lembak,

Systems Trading Expert,


"Tomas is a professional trader, who for the last 10 years has specialized in developing trading systems. We have been tracking his trading systems for about 5 years and they generally show very robust, stable and above average performance. Striker is pleased to work with someone like him - a real professional with enthusiasm and deep knowledge of trading."

William Galwas, President Of Striker Securities, Inc 

"Personal consultation with Tom helped me to re-evaluate the complexity of my robustness testing and optimization processes. Plus, it has helped me with a specific plan on how to take things forward. It has given me some great ideas on how to avoid overfitting and make my testing more robust and provided tips on low hanging fruit in terms of the best markets to trade for intraday/short-term breakouts."

Craig Peters,

semi-advanced trader,

United Kingdom 

"Tom's approach to Automated Trading Strategies design, tests of robustness and portfolio diversification is really unique. He has been a professional trader for many years and the depth of his understanding of Breakout strategies and Market Internals is hard to find elsewhere."

Antonin Fisher,

Hedge Fund Manager,

Czech Republic 

"Tom´s systems and trading approach do really work and can bring good, stable and reasonable returns. I can highly recommend him as a teacher."

David Hruby,

Trader, Czech Republic 

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Author: Tom Nesnidal (more about me
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