Financial markets are a dynamic ecosystem where nothing is permanent except change itself. Asset prices rise, fall, consolidate, make false moves, and often surprise even the most experienced participants. In such an environment, any attempt to find a “single holy grail” in the form of one perfect trading strategy is doomed to fail. A much more sustainable and professional solution is a multi-strategy approach – this is precisely how the largest hedge funds and institutional investors trade.
In this digest, we will thoroughly examine why you can’t rely on a single strategy, what market regimes require different tools, how hedge funds build diversified portfolios of strategies, and what an individual investor or trader can learn from this.
Part I. Why One Strategy Doesn’t Work in All Market Phases
1. The Nature of Market Phases
The market lives in cycles. Even if we don’t delve into classical economic cycles (expansion – overheating – slowdown – crisis), at a more practical level, any trading system encounters three key market regimes:
- Trend (up or down) – when an asset moves in one direction for a prolonged period.
- Consolidation (sideways) – when prices are trading in a range without a clear direction.
- High Volatility and Sell-off (crash) – when the market is under stress, liquidity drops, and movements become chaotic and sharp.
Each of these regimes places different demands on strategies. What works in a trend can “kill” a deposit in a consolidation. And what generates profit in a consolidation will lead to a series of losses during a sell-off.
2. The Universal Strategy Problem
Many novice traders make a classic mistake: they search for a strategy that “will always work.” They test algorithms, optimize parameters, and end up with a tool perfectly suited for a specific historical period. But as soon as the market phase changes, the system stops working. This is why even the largest funds don’t rely on a single approach. They build an entire set of strategies and models, where each one serves a different purpose.
Part II. How Hedge Funds Build Multi-Strategy Portfolios
1. The “Basket of Strategies” Principle
Most large hedge funds (like Bridgewater, Renaissance Technologies, Citadel) don’t put all their eggs in one basket. Their portfolios consist of dozens or hundreds of strategies, often operating in different markets and over different time horizons:
- Trend-following algorithms
- Arbitrage strategies
- Market-neutral models
- Volatility strategies
- Event-driven strategies
The goal of these funds is not to “catch the best trade,” but to balance their portfolio of strategies so that, regardless of the market phase, they have protection and the opportunity to profit.
2. Trend-Following Funds (CTAs)
Funds specializing in “Commodity Trading Advisors” often use trend-following strategies. They are excellent at profiting during periods of directional movement (for example, the oil crash in 2014 or the rise in gold in 2024). However, during consolidation periods, these same systems incur losses. This is why professionals always combine trend-following strategies with market-neutral or arbitrage models.
3. Example: Renaissance Technologies
One of the most successful hedge funds in history, Renaissance Technologies, is known for having hundreds of micro-strategies based on statistical patterns. Each of them may generate very small profits, but collectively they produce a stable return. At the same time, the fund constantly deactivates and adds strategies, adapting to changes in the market environment.
Part III. A Typology of Strategies by Market Phase
1. Strategies for a Trending Market
- Trend following: Buying rising assets and selling falling ones.
- Momentum trading: Betting on the continuation of a short-term impulse.
Trend strategies make money when there is a steady direction. Their weakness lies in periods of consolidation and false breakouts.
2. Strategies for a Consolidating Market
- Mean reversion: Selling at the top of a range and buying at the bottom.
- Arbitrage trades: Exploiting price inefficiencies.
These approaches are effective when the market is in a range but become unprofitable during strong breakouts.
3. Strategies for Sell-Offs and Crises
- Volatility strategies: Buying options, VIX futures.
- Tail risk hedging: Protection against extreme events.
These instruments often lose money in “peaceful” times but become a lifeline during crises.
Part IV. Strategy diversification as capital protection
1. The Principle of Unpredictability
No one can know in advance what the market regime will be tomorrow. Therefore, the key to stability is diversification. If you only have a trend-following strategy, you are doomed to lose money in a consolidation. If you only have a range-bound strategy, you will suffer in a trend. If you only have a defensive strategy, you will miss out on most of the growth.
2. Strategy Correlation
The main task for a professional is to find strategies with low correlation to each other. If one strategy profits in a trend and another in a consolidation, their combination will smooth out the profit curve.
3. Capital Management
It’s not enough to just have different strategies; you also need to allocate capital correctly among them. Part of the funds should be in your “workhorses” (core strategies), part in defensive instruments, and part in experimental models.
Part V. What an Individual Trader and Investor Can Take Away
1. Abandon the “Grail”
The first step is to stop looking for a universal strategy. Such a strategy simply does not exist.
2. A Minimal Set of Strategies
An individual investor can be well-served by having 2-3 proven strategies:
- One trend-following strategy.
- One range-bound strategy.
- One defensive strategy.
3. Constant Adaptation
The market changes, so you need to regularly review your set of strategies, deactivate those that are no longer working, and add new ones.
4. Watch the Market
When trend-following strategies suffer losses (as in 2025), it’s worth reallocating a portion of your capital to the approaches discussed: risk parity, protected fundamental bets, and event-driven strategies.
5. Use Available Tools
ETFs like BlackRock’s ISMF provide access to diversification. This is a simplified, transparent, and accessible option for individual investors.
6. Learn From Case Studies
The stories of champions like Magnetar (AI positions), Quantedge (cross-market systems), Bridgewater (All-Weather), and Rokos (discretionary) can inspire you to create your own strategic portfolio.
Part VI. Current Сhallenges for Strategies and Their Adaptation
1. Challenges for Trend-Following Strategies in 2025
Trend-following funds faced their worst start to the year since 1998, with weak trends, sharp reversals, and high uncertainty. Man Group AHL and other benchmarks suffered, while the S&P 500 rose by 6.2% – a great time for discretionary strategies, but not for systematic ones. This shows that even proven approaches sometimes require a pause or a change in strategy.
2. The Strength of the Human Factor
During the April 2025 turbulence, a flexible, human-led approach (discretionary strategies) proved more successful than machine modeling. This is evidence that combining systematic and human management is more effective.
Bottom Line
The financial market is a system where the only constant is change. You cannot rely on a single strategy and expect it to survive every market phase. This is precisely why hedge funds and professional managers build multi-strategy portfolios: trend, consolidation, defensive, and arbitrage models work together to create a stable result.
For the individual investor, the main conclusion is simple – diversification is needed not only across assets (stocks, bonds, gold) but also across strategies. This is the only way to protect capital and ensure long-term, stable returns.