Futures – Portfolios

Portfolio Construction
Every trader’s twin evils when developing ideas and strategies are curve fitting and data mining. One is always present while the other can be eliminated.

Curve fitting will always be present. All traders do it to some degree. Most traders over do it. The good traders always look to minimise it.

Data mining can be avoided by objectively selecting a universal portfolio of markets that are well diversified and have minimal correlation.

For my trading and research I use a universal portfolio of 24 diverse markets spread across 8 market segments including the;

  • currencies,
  • interest rates,
  • indices,
  • energy,
  • metals,
  • grains,
  • softs and
  • meats.

Within each market segment I select the 3 most liquid futures contracts based on their average daily volume.

Using diversification and volume as the selection criteria provides me with an objectively and independently selected portfolio of diversified markets.

A portfolio of markets that is absent of any data mining or cherry picking.

That is what I trade and research.

 

For indices I trade the following markets based on geography and liquidity.

Reality Check
The number of markets you trade will depend upon a number of factors including;

  • Risk capital,
  • Risk appetite and
  • Strategy/s drawdown.

Naturally traders with less risk capital will trade less markets relative to traders who have more risk capital.

Traders starting out, or even experienced traders looking to re-enter the market, should look to start small, survive trading and build their account balance before adding more strategies and more markets.

In an ideal world, traders using sensible money management, would trade a portfolio of diverse and complimentary multiple timeframe positive expectancy strategies over a portfolio of diverse and liquid markets.

Unfortunately, it’s not an ideal world.

Unfortunately, traders are constrained by both their knowledge and their risk capital.

Starter Portfolio: Indices
I would encourage new traders starting out, or experienced traders looking to re-enter the indices, depending on both their risk capital, risk appetite and strategy performance, to consider one of the following portfolios based on geography and liquidity;

Once your account balance grows and allows additional strategies and markets you can implement the following portfolio construction pathway;

  • Idx1      1 index portfolio
  • Idx2      2 index portfolio
  • Idx3      3 index portfolio
  • Idx6      6 index portfolio
  • Idx9      9 index portfolio




Starter Portfolio: Diversified Markets

I would encourage new traders starting out, or experienced traders looking to re-enter the markets, depending on both their risk capital, risk appetite and strategy performance, to consider one of my portfolios below that are based on diversity and liquidity.

Once your account balance grows and allows additional strategies and markets you can implement the following portfolio construction pathway;

  • P2        2 market portfolio.
  • P4        4 market portfolio,
  • P8        8 market portfolio,
  • P16      16 market portfolio and
  • P24      24 market portfolio.

These portfolios are not data mined.

They’re objectively and independently selected based on their diversity and liquidity.

Data Source
I use Norgate’s Premium Data for all my back-testing.

Data:                    I use futures data.
Period:                 Start: 1979 – to present.
Source:                I use Premium Data from Norgate Investor Services;
                               www.premiumdata.net
Format:                I use the back-adjusted continuous future contract data.
Sessions:             I use the combined all-sessions data.
Data rollover:       I used Premium Data’s default rollover days that attempt to roll over when the daily volume shifts.