My internal wiring sometimes leads me on a never-ending questioning quest. While such an inquisitive nature can result in many worthwhile revelations, it does come with a variety of annoyances. The world of “what-ifs” is exciting, but often becomes an endless stream of time-wasting if one forgets to bring along a dash of moderation. Sometimes excessive tinkering yields the complete opposite result than originally intended. For example, attempts to morph a good trading strategy into a better one often lead to worsening its performance.

Traders are particularly susceptible to falling into the tinkering trap following a bout of underperformance. Suppose you have a strategy that normally works well but goes through a couple losing months in a row. During such a spell most traders waffle between the following two choices – stay the course as favorable conditions should eventually return or modify the strategy in an attempt to improve its performance if the unfavorable conditions persist.

I would note, however, a third alternative exists.

Suppose we employed a market neutral trading strategy using iron condors each month in an attempt to profit from neutral or range-bound market conditions. When using this approach a strong trending market (up or down) would be considered unfavorable conditions. Now, let’s say we’re coming off two months of a strong uptrend and are feeling somewhat tempted to tinker with the condor strategy to improve its performance. Rather than traversing the potential treacherous tinkering route, how about leaving the iron condor strategy as-is and instead adding a trending strategy to your arsenal to complement the non-trending one?

Such a trending strategy may incorporate long or short stock plays, directional credit spreads, or any other approach designed to thrive when mean reversion is dead.

You may find this third door a superior alternative to the first two. The idea, of course, is to have the strengths of the trending strategy offset the weaknesses of the non-trending strategy and vice versa.

In the end I like the idea of running a simple non-trending strategy simultaneously with a simple trending strategy over attempting to construct a complex hybrid strategy that supposedly will weather all environments.

Beware the tinkering trap. Many a fool have fallen prey to it.

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