TRADETHINK ARTICLES : Trading Multiple Market Sectors for Diversification

June 5, 2009

Trading Multiple Market Sectors for Diversification

By Chris Morse

One key ingredient to successful trading is to be diversified. Diversification comes in many forms and flavors. A key area for diversification is in the markets that we follow. Another area of diversification is in the sectors we follow (grains, fuels, metals, etc). Finally there is time frame diversification. Today I will focus on market sector diversification.

There are eight (depending on who you ask) main commodities market sectors. The market sectors include; grains, fuels, meats, metals, softs, currencies, stock indices and financials. It is widely known that markets trend on average about 1/3rd of the time and the rest of the time they are going sideways. Also, not all market sectors trend at the same time. There are periods when the bonds and currencies will move, but not the metals and grains. There are times when the fuels and metals will trend, but not the bonds or currencies. In fact at any given time any combination of market sectors may or may not be trending.

How does a trader take advantage of market sector diversification? One way is by following a portfolio of different market sectors at the same time. Instead of focusing just on single market sectors like the currencies or metals, one would instead take a broader look at the markets and follow multiple sectors simultaneously. This way if you are tracking a market or two in each sector (grains, fuels, meats, metals, softs, currencies and financials) you will be able to benefit from just about any movement in the markets. TradeThink is a great tool for following multiple market sectors simultaneously. To receive a 30 day complimentary evaluation of our trade signals go here.

Currently there are several market sectors making some nice moves. The fuels have been moving to the upside. Grains have been trending up. The metals are going higher. Bonds are falling and currencies are rising against the Dollar.
Let me show you what happens when you have a strategy that follows multiple market sectors at the same time. The trades below are generated from the trading systems I developed for TradeThink.

Currencies

Here you can see a trade that Think Pro picked up on in the Euro Currency. On 5/7/2009 TradeThink had an entry signal to go long (buy) at 1.3436. Please see the chart below:

As you can see TradeThink Pro went long (bought) EC and is still long with an open profit of $8,712.50 per contract.

Grains

Here you can see a trade that Think Pro picked up on in the Soybeans. On 5/1/2009 TradeThink had an entry signal to go long (buy) at 1063. Please see the chart below:

As you can see TradeThink Pro went long (bought) Soybeans and is still long with an open profit of $5,950 per contract. Go here to get 30 days of complimentary trade signals for soybeans and other markets.

Fuels

Here you can see a trade that Think Pro picked up on in the Brent Crude Oil. On 5/27/2009 TradeThink had an entry signal to go long (buy) at 61.43. Please see the chart below:

As you can see TradeThink Pro went long (bought) Brent Crude and is still long with an open profit of $4,450 per contract.

Meats

Here you can see a trade that Think Pro picked up on in Lean Hogs. On 4/27/2009 TradeThink had an entry signal to go short (sell) at 70.3. Please see the chart below:

As you can see TradeThink Pro went short (sold) Lean Hogs and is still short the trade with an open profit of $3,980 per contract.

Metals

Here you can see a trade that Think Pro picked up on in Silver. On 5/5/2009 TradeThink had an entry signal to go long (buy) at 1325. Please see the chart below:

As you can see TradeThink Pro went long (bought) Silver and is still long with an open profit of $10,300 per contract. Go here to get 30 days of complimentary trade signals for silver and other markets.

Bonds

Here you can see a trade that Think Pro picked up on in the Thirty Year Bonds. On 4/29/2009 TradeThink had an entry signal to go short (sell) at 122.06. Please see the chart below:

As you can see TradeThink Pro went short (sold) US Bonds and is still short with an open profit of $5,810 per contract.

It is clear that following multiple market sectors can be beneficial to a trader. The key is not putting all of your eggs in one basket (single market sector). If you cover all your bases (multiple market sectors), when there is a move you will have the best chance of catching the trend. Try following multiple market sectors simultaneously complimentary for 30 days and see for yourself the true power of diversification. Go here to get started with a complimentary evaluation of TradeThink.

Trading signals and charts are courtesy of TradeThink, Inc.

About the Author

Chris Morse is the Developer of the TradeThink trading system. He has been involved in the development of trading strategies for nearly ten years. Mr. Morse developed a very robust system which is now in private use at one of the largest FCM's and has earned sizable returns for the last 3 years. Mr. Morse now focuses his time exclusively on developing and managing his systems.

Disclosure: Commodity trading has large potential rewards, but also large potential risks. You must be aware of the risks and be willing to accept them in order to invest in the futures markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to buy/sell commodity interests.

Notice: Returns are hypothetical. Hypothetical or simulated performance returns have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since trades have not actually been executed, the results may have under or over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight, no representation is being made that any account will or is likely to achieve profits or losses similar to those shown.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. INVESTMENTS IN FUTURES INVOLVES HIGH RISKS AND YOU CAN LOSE A LOT OF MONEY.

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