Feb

6

 In the short term trading world is it better to diversify and trade many things or specialize and trade just a few. I am in the later camp, as it takes all my usable mind capacity to manage just one or two positions concurrently.

Others prefer to trade many instruments saying it increases opportunity and reduces risk by diversifying. However in futures trading, and short-term in particular, there is no Markowitz "free lunch" that comes from diversification which applies only to stocks. By trading more instruments it does perhaps give you something to do when other markets are slow. This however could also be viewed as a negative, and maybe it is better to not be in the markets at times. It makes sense to me to trade based on opportunity. Yet, in practical trading-life these opportunities are so difficult to find, it takes being a specialist to uncover them.

In angling, I am a bit of a hybrid. I specialize in flyfishing, but I will go after anything with gills and scales and recently added the beloved carp to my list. In economics, comparative value tell us to specialize and has been the source behind much advancement. Ben Green traded just horses and the occasional mule. Bacon just bet on the ponies. Specializing served them both well.

Anatoly Veltman writes: 

The main advantage of algo trading is the ability of your portfolio to simultaneously participate in all futures you've pre-programmed. Certainly that's an impossible task for a manual trader

Kim Zussman comments: 

Duncan isn't trading index futures lunching with Markowitz? (Albeit less so than before the period of widespread indexification).


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