Why Two Strategies Are Better Than One: Trend-Following + Mean-Reversion

What if the secret to consistency isn’t a perfect strategy but combining two very different ones?

In trading, no single strategy works all the time.

Markets are complex, adaptive systems, and what works in one regime can fail spectacularly in another. This is why professional traders and portfolio managers rarely rely on just one approach, they combine strategies with different characteristics to create a more balanced, resilient portfolio.

In this post, I’ll walk you through why pairing Trend-Following with Mean-Reversion is such a powerful combination, and how this two-strategy approach can help smooth returns, reduce drawdowns, and improve overall performance. I will do this with 2 strategies that will be accessible via my Substack.

Trend-Following vs. Mean-Reversion: Opposite Forces, Perfect Partners

• Trend-Following seeks to capture large directional moves by riding established momentum. It thrives in strong, persistent markets (think of long bull runs or deep bear trends).

• Mean-Reversion, on the other hand, looks for short-term extremes where price deviates too far from a “fair value” and is likely to snap back.

On their own, each approach has blind spots:

• Trend-following suffers in sideways markets, bleeding slowly through whipsaws.

• Mean-reversion struggles when real trends emerge, as “oversold” can keep getting more oversold.

But when combined, their weaknesses often offset each other.

The Power of Combining Two Strategies

When you put a trend-following system and a mean-reversion system together, you’re essentially diversifying across market regimes:

• During trends, the trend-following system contributes the bulk of returns.

• During ranges, the mean-reversion system picks up the slack.

The result is a portfolio with smoother equity growth, less volatility, and more consistent returns across different environments.

I will show you an example portfolio of just 2 strategies, I would recommend aiming for at least 5-10+ when creating your own portfolio.

Performance of the Combined Approach

I did backtests with included spreads and costs for these 2 strategies using ProRealTime and then imported the trades to my portfolio building tool.

These strategies have a drawdown correlation of -0.13. In practice, this means their drawdowns often occur at different times, offsetting each other.

The following results are from 2006-2025 and with a starting capital of 20.000€.

• CAGR: 10.5%

• Maximum Drawdown: -12.9%

• MAR: 0.81

• Trades: 597

• Win Rate: 65.7%

• Risk/Reward: 0.9

It could also be interesting to see average drawdown and max drawdown length.

• Max Drawdown Duration: 840 days

• Average Drawdown Duration: 176 days

  
  

What’s important isn’t just the raw return, but how stable those returns are.

Sure, the drawdown duration is long but remember this is with just 2 strategies, add a few more uncorrelated strategies and those drawdown durations will be much shorter.

A single strategy may show strong growth but come with frustrating drawdowns and high volatility, the key is to not try to get lower drawdowns with one strategy but keep it as simple as possible and try to optimize the portfolio instead of the strategy.

By combining trend-following and mean-reversion, the equity curve tends to be smoother, with drawdowns more manageable and performance more consistent.

This balance allows traders to stay the course psychologically, which is often the biggest edge, therefore good diversification and portfolio building is the biggest edge in my opinion.

My Two-Strategies

I’ve recently released the Stochastic Extremes Strategy on Gold, a mean-reversion approach designed to exploit overextended moves. This serves as the first half of the two-strategy portfolio.

Next week, I’ll be releasing the Trend-Following Strategy as a paid post, which is the other strategy I use for this portfolio. Together, they form a robust portfolio that adapts to shifting market conditions. There are big improvements to make to this portfolio, you could use this as a foundation to build upon or take inspiration from.

When combined, the performance illustrates the power of diversification, while significantly reducing the severity of drawdowns compared to running either strategy in isolation.

Why This Matters For Traders

If you’ve ever:

• Felt frustrated by long stretches of losses in a single system…

• Abandoned strategies because they “stopped working”…

• Or struggled with emotional decision-making during drawdowns…

…then combining strategies is one of the best ways to solve these problems.

The goal isn’t just higher returns, it’s more reliable returns.

Where can I get these strategies?

You can already access the Stochastic Extremes Strategy HERE.

Next week (probably Sunday), I’ll release the Trend-Following Strategy for paid subscribers. Subscribe for free to my Substack and you will get a free strategy in your inbox.

My Substack

Together, these two systems create a portfolio that’s greater than the sum of its parts.

Don’t think of strategies as competitors. Think of them as teammates. The best trading portfolios are built not on finding the perfect strategies, but on combining imperfect ones.

Disclaimer: I am not a financial advisor and I don’t recommend you to trade my strategies. This article is for informational and educational purposes only. Trading involves risk, and you can lose money. Always do your own research.