Different trading rules and strategies we use to manage portfolios properly.
Overview: four strategy types
Our framework builds on top of four categories of trading strategies:
Trading signal/strategy
Returns Skew
Examples
Momentum
Positive
Trend-following strategies that profit from sustained directional moves
Breakout
Positive
Volatility strategies that capture range expansions
Basis (Carry)
Negative
Yield-harvesting strategies that collect funding rates and staking yields
Mean Reversion
Negative
Counter-trend strategies that profit from overshoots
Skew is a statistical concept that we use very often in finance. Where an asset has a higher chance of a large down move than an equivalent up move, it said to have a negative skew. However, If the large up moves are more likely, then an asset has a positive skew.
By combining positive and negative skew strategies, we create a more balanced return distribution. Why diversify across strategy types? Because different strategies perform in different market regimes:
Market regime
Performance
Trending market
Momentum and breakout outperform
Range-bound market
Basis (Carry) and mean reversion outperform
High volatility
Breakout captures expansions, mean reversion fades extremes
Low volatility
Basis (Carry) strategies harvest yield, while momentum underperforms
