Combining multiple forecasts
Strategic Forecast Integration
Effectively combining multiple signals creates higher-probability opportunities while maintaining proper risk management.
Core Combination Methods
1. Confluence Trading
- Definition: Multiple forecasts aligning on same asset
- Benefits: Higher probability, stronger conviction
- Example: Short-term and medium-term BUY signals coinciding
2. Portfolio Diversification
- Definition: Spreading across uncorrelated forecasts
- Benefits: Smoother equity curve
- Example: Tech sector BUY + Energy SELL + Forex neutral
3. Timeframe Stacking
- Definition: Combining different horizon forecasts
- Benefits: Captures both momentum and trend
- Example: Using weekly trend to filter daily signals
QuantWave Combination Tools
| Tool | Combination Function |
|---|---|
| Correlation Matrix | Visualizes relationships between forecasts |
| Portfolio Simulator | Tests combined forecast performance |
| Signal Overlay | Identifies confluence opportunities |
Optimal Combination Framework
1. The 3-Filter System
- Primary: Directional alignment (80%+ agreement)
- Secondary: Timeframe confirmation
- Tertiary: Risk/reward compatibility
2. Position Scaling Rules
- Single high-conviction signal: Normal position
- Two confirming signals: 1.5x position
- Three+ signals: 2x position (maximum)
Risk Management for Combined Forecasts
1. Aggregate Risk Calculation
- Total portfolio risk stays below 5-10%
- Correlated positions count as single exposure
- Adjust for volatility clusters
2. Combination-Specific Stops
- Tighter stops for single-signal positions
- Wider stops for high-conviction combinations
- Trailing stops for stacked timeframe trades
Common Combination Mistakes
- Over-concentration in single asset/sector
- Ignoring negative correlation opportunities
- Mixing incompatible time horizons
- Over-leveraging "perfect" setups
Performance Tracking
- Tag trades by combination type
- Compare single vs. multiple signal results
- Adjust combination rules quarterly
Strategic forecast combination multiplies the power of QuantWave's analytics while controlling risk. By systematically identifying and scaling into high-probability confluence setups across diverse assets and timeframes, traders can build robust portfolios that outperform single-signal approaches.