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Dual-Edge Diversification: Trend Following on Commodities + Mean Reversion on Equity Index Futures

One of the most important realities in trading is that no single strategy performs well across all market conditions.


  • Trend-following thrives during strong directional moves but struggles in sideways markets.

  • Mean reversion excels during ranges and pullbacks but struggles during sharp momentum phases.


Because markets rotate between these environments constantly, the goal is not to time them, but to combine edges that perform in different regimes so that something in your portfolio is always aligned with the current market structure.


This portfolio is built with that purpose.


It combines:


Together, they form a portfolio that can capture trends when they extend and generate profits during reversals when momentum temporarily cools.


individual strategy equity curve

Portfolio Logic

This portfolio is designed to diversify across market behavior, not just asset class.


  • Captures long directional commodity trends

  • Trades infrequently, aiming for asymmetric winners

  • Benefits from market cycles driven by supply, macro, and seasonality


MA Envelope Mean Reversion (S&P 500 Futures)

  • Buys retracements during volatility spikes and overreactions

  • High win-rate, shorter trade durations

  • Tends to perform well when equity trends pause or correct


Shared Risk Management Foundation

  • ATR-based dynamic position sizing ensures volatility-adjusted exposure

  • Positions adapt automatically to high or low volatility conditions

  • No predictive assumptions — pure reaction to price dynamics


When commodities trend → the breakout system drives the portfolio.

When equities revert → the mean reversion system stabilizes returns.


combined portfolio equity graph

Why This Combination Works

  • Behavioral Offset: One system profits from crowd momentum, the other from crowd overreaction.

  • Market Cycle Diversity: Commodities and equity indices are influenced by different macro drivers.

  • Volatility Normalization: ATR-based sizing prevents overexposure in fast-moving markets.

  • Regime Coverage: Trend persistence and reversion cycles tend to alternate, balancing each other.


This is intentional diversification, not diversification by spreading trades randomly.


Performance Overview (2014–2025)

Combined Portfolio Results:

  • Total Profit: 22,685 €

  • Number of Trades: 140

  • Win Rate: 57.9%

  • Gain/Loss Ratio: 2.36

  • Calmar Ratio: 0.92

  • Max Drawdown: –12.5%

  • CAGR: 11.5%

  • Average Drawdown Duration: ~166 days

combined portfolio trade distribution

Individual System Contributions

Donchian Breakout (Wheat & Soybeans):

  • CAGR around 4–5%

  • Moderate win rate (~45%)

  • Drawdowns remain controlled but present


MA Envelope Mean Reversion (S&P 500):

  • Higher CAGR around 7.4%

  • High win rate (~73%)

  • Designed for frequent stability, not explosive upside


Combined: The portfolio becomes smoother, more resilient, and more consistent than either strategy alone.


Portfolio Behavior in Live Markets

  • During strong agricultural trends → the breakout system typically leads performance.

  • During equity pullbacks or consolidations → the mean reversion system adds consistent gains.

  • When one system stagnates, the other frequently compensates.


This produces a steady, wave-like equity curve rather than sharp surges and drawdowns.


Key Takeaways for Systematic Portfolio Construction

  • Diversification must be behaviorally engineered, not randomly distributed.

  • ATR-based sizing is essential for stable, volatility-adjusted risk exposure.

  • Combining trend and reversion edges is one of the most reliable ways to smooth returns.

  • Small, robust, rule-based systems compound extremely effectively when paired correctly.


What’s Next

The next release in this series introduces the full Mean Reversion Envelope strategy, optimized for major equity index futures such as the S&P 500.


Premium members will receive:

  • Full ProRealTime source code

  • Strategy explanation and logic breakdown

  • Implementation guidance for other platforms


Disclaimer

This material is for educational purposes only. Past performance does not guarantee future results. Trading involves risk. Always perform independent research before applying any strategy.

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