Managing Multiple Trading Strategies: A Portfolio Approach

You've built one automated strategy. It works. Now you're thinking: what if I ran two? Or three?

Multiple strategies can smooth your equity curve, diversify your risk, and capture opportunities your single strategy misses. But they can also interfere with each other, exceed your risk limits, and create complexity that's hard to manage.

This guide is about doing it right.

Why Run Multiple Strategies?

Diversification of Returns

Different strategies perform well in different conditions. Your trend-following system crushes it in directional markets but bleeds in chop. Your mean-reversion system does the opposite.

Running both means you're not completely dependent on any single market condition. When one strategy struggles, the other might carry the load.

Uncorrelated Drawdowns

If Strategy A and Strategy B don't draw down at the same time, your combined drawdown is smaller than either individual drawdown. This is portfolio theory applied to your trading systems.

The key word is "uncorrelated." Two momentum strategies on the same instrument will draw down together. That's not diversification - that's concentration.

Opportunity Capture

Some days have no good setups for your primary strategy. A secondary strategy might find opportunities your first one ignores.

More opportunities with the same capital utilization equals better returns. If done correctly.

The Challenges of Multi-Strategy

Risk Stacking

Each strategy has its own position sizing. If both strategies trigger simultaneously, you might end up with 2x, 3x, or more exposure than you intended.

Example: Strategy A takes 2 contracts. Strategy B takes 2 contracts. Both trigger long on NQ at the same time. Now you're holding 4 contracts when your max intended position was 2.

Conflicting Signals

Strategy A says buy. Strategy B says sell. Now what?

Without rules for handling conflicts, you end up with offsetting positions (wasting capital on both sides) or manual intervention (defeating the purpose of automation).

Margin and Buying Power

Your account has limited margin. Each strategy assumes it has access to full buying power. If both fire at once, one might fail to execute due to insufficient margin.

Complexity Creep

One strategy is easy to monitor. Five strategies each with their own parameters, rules, and edge cases? That's a full-time job to track.

The risk: you lose oversight, problems go unnoticed, and eventually something blows up.

Building a Multi-Strategy Framework

Define Your Master Risk Budget

Before adding strategies, decide your total risk tolerance:

• Maximum total position size (all strategies combined)
• Maximum daily loss (all strategies combined)
• Maximum drawdown (all strategies combined)

Each individual strategy gets allocated a piece of this budget - not the whole thing.

Allocate Risk Per Strategy

If your total risk budget is 4% daily, and you run 4 strategies, each strategy gets 1% daily risk. Or allocate unevenly: 2% to your primary strategy, 0.5% to each of three secondary ones.

The allocations should sum to your total budget, not exceed it.

Create Position Limits

Set hard caps on total exposure:

• Maximum contracts per instrument (across all strategies)
• Maximum total portfolio delta
• Maximum concentrated risk in any single direction

When a strategy tries to exceed these limits, it either waits or adjusts.

Handle Conflicts Explicitly

Define rules before conflicts happen:

Option 1: First Signal Wins

Whichever strategy signals first takes the trade. The second signal is ignored until the first position closes.

Option 2: Net Position

Opposing signals cancel out. Long signal + short signal = flat. Only net exposure is executed.

Option 3: Priority Ranking

Strategy A has priority over Strategy B. When both signal, A wins. B only trades when A is inactive.

Option 4: Separate Capital

Divide your account into buckets. Each strategy only sees its allocated capital and can't interfere with others.

Choose what makes sense for your strategies. There's no universal right answer.

Build a Dashboard

You need visibility into:

• Current position per strategy
• Total combined position
• Daily P&L per strategy
• Combined daily P&L
• Current risk utilization vs. limits

If you can't see this at a glance, you don't have control.

Practical Implementation in Algo Bread

Approach 1: Separate Breadkeys, Shared Account

Create a breadkey per strategy, all pointing to the same trading account. Each breadkey has its own position limits and rules.

Algo Bread will track positions per breadkey and enforce limits independently.

Pros: Simple setup, clear attribution Cons: Manual coordination for total exposure limits

Approach 2: Strategy Groups

Define a strategy group that encompasses all your strategies. Set group-level limits that apply regardless of which strategy triggered.

Pros: Automatic total exposure management Cons: More complex setup

Approach 3: Multiple Accounts

Run each strategy on a separate prop account. Natural isolation - Strategy A can't affect Strategy B's account.

Pros: Perfect isolation, clear P&L attribution Cons: Need multiple funded accounts, separate fees

Correlation Analysis

Before running strategies together, understand how they correlate:

Step 1: Run Both in Backtesting

Generate trade logs for each strategy over the same historical period.

Step 2: Compare Daily Returns

Calculate daily P&L for each strategy. Compute the correlation coefficient.

• Correlation > 0.7: High correlation. Running both is barely better than running one at 2x size.
• Correlation 0.3-0.7: Moderate correlation. Some diversification benefit.
• Correlation < 0.3: Low correlation. Good diversification.
• Correlation < 0: Negative correlation. Excellent diversification - they offset each other.

Step 3: Compare Drawdown Periods

Do they draw down at the same time? If yes, your combined max drawdown might not be much better than individual ones.

If drawdowns are offset, combined drawdown could be significantly smaller.

When to Add Another Strategy

A second strategy makes sense when:

• Your first strategy is profitable and stable (don't add complexity to fix a broken base)
• The new strategy is uncorrelated or negatively correlated with your first
• You have the risk budget to allocate without reducing your primary strategy
• You have the bandwidth to monitor both properly

A second strategy doesn't make sense when:

• Your first strategy isn't working yet (fix that first)
• The new strategy would trade the same setups in the same conditions
• You're at your risk limit already
• You're adding it because you're bored, not because it improves your portfolio

Common Multi-Strategy Mistakes

Running Too Many

Three well-chosen strategies usually beats ten mediocre ones. Each additional strategy has diminishing diversification benefit and increasing management cost.

Ignoring Correlation

Adding a second momentum strategy doesn't diversify your momentum exposure. True diversification requires different edge sources, not just different parameters.

Failing to Attribute P&L

"I made $500 today" is useless information. You need to know: Strategy A made $800, Strategy B lost $300. Without attribution, you can't evaluate what's working.

Equal Allocation Regardless of Edge

If Strategy A has twice the expected value of Strategy B, it should probably get more risk allocation. Don't default to equal splits.

No Kill Switch

When things go wrong, you need to be able to flatten everything instantly. With multiple strategies, this is more complex. Build a single button that stops all trading across all strategies.

Starting Your Multi-Strategy Journey

Begin with just two strategies:

• Your primary (the one that's working)
• One addition that's clearly different (different timeframe, different logic, or different market condition)

Run them together for at least a month in paper trading. Watch for:

• Combined position sizes
• Conflict frequency
• Attribution clarity
• Your ability to monitor both

Only go live when you understand how they interact. Then, only add a third strategy after the two-strategy setup is stable.

Complexity compounds. Take it slow.