How to Construct a Hybrid Buy and Hold + Trend Following Portfolio

Gaurav Sangle

• 4 min read
How to Construct a Hybrid Buy and Hold + Trend Following Portfolio

A buy-and-hold portfolio works well when markets rise steadily and volatility stays contained. Trend-following works well when markets break into strong directional phases or slide into prolonged downturns. Most retail traders discover that each approach has weaknesses on its own, but together they create a portfolio that grows consistently while avoiding the worst market periods.

The challenge is always the same: how do you blend a passive core with an active overlay without overcomplicating the structure? How do you impose clear rules so that the system behaves predictably, regardless of market noise?

Many traders use Stratzy early in this process because it gives them a sense of index direction, strength, and momentum. Instead of staring at a blank chart, they start with a structured idea, then convert it into rules and test it. Once you know your directional model, building the hybrid framework becomes more systematic.

Below is a connected, step-by-step way to construct a hybrid portfolio in a manner that aligns with how quant and systematic traders actually work.

Why Combine Buy and Hold With Trend Following

Buy-and-hold lets you participate in long-term economic growth. However, it exposes you fully to deep drawdowns like 2008 or the COVID crash. Trend-following does the opposite: it reacts to price behaviour and reduces exposure when markets weaken. On its own, it may underperform during sideways phases, but it protects capital during major downturns.

When combined, the two create a balance:

  • The buy-and-hold layer quietly compounds over years.

  • The trend-following layer steps in to reduce the worst losses.

  • The overall portfolio becomes easier to stick with because drawdowns are controlled.

This combination is appealing for retail traders who want long-term exposure but can’t tolerate sharp, prolonged declines.

Step 1: Build the Core Buy-and-Hold Allocation

This is the part of your portfolio that remains invested unless there’s a major structural change. In India, traders typically use broad indices because they self-adjust and avoid single-stock risk.

A common blend might include:

  • Nifty 50 for core large-cap exposure

  • Nifty Next 50 for higher growth potential

  • Gold or gold ETFs for crisis protection

  • A global allocation such as Nasdaq ETFs for diversification

The exact mix depends on your risk tolerance, but the structure should be simple. This layer should not require frequent changes, its purpose is to anchor the portfolio.

Step 2: Choose the Trend-Following Model

The trend overlay is not meant to trade aggressively. Its job is to adjust exposure when market conditions shift. Most trend systems rely on a few reliable, rule-driven indicators.

Useful filters include:

  • Price above or below the 200-day simple moving average

  • A 50–200 day moving average crossover

  • Supertrend directional bias

  • Weekly MACD slope turning positive or negative

  • RSI behaviour around the 50 midpoint

These filters are simple, measurable, and easy to automate. They help define whether the market environment is supportive or hostile.

This is also where Stratzy often helps. Its trend-based models and directional breakdowns make it easier to decide which trend filter fits your style before committing to full backtests.

Step 3: Decide How Trend Signals Modify Exposure

The hybrid method is flexible, but the rules must be defined cleanly. There are three practical ways to combine trend signals with your buy-and-hold core:

A straightforward version could be:

  • When Nifty closes below its 200-day average → cut equity exposure by half or shift that portion into liquid funds or gold

  • When Nifty closes back above → restore full allocation

This approach doesn’t chase short-term swings. It simply avoids periods where the market lacks long-term strength.

Add a Trend-Following Sleeve

Here, the buy-and-hold portion remains untouched. You add a separate sleeve that trades using trend rules.

Example:

  • 70 percent remains in core index ETFs

  • 30 percent trades trend signals through futures or ETFs

This creates an active layer without interfering with long-term positions.

Scale Exposure Based on Trend Strength

A more advanced structure gradually adjusts exposure.

Example:

  • Strong trend → increase exposure

  • Neutral → reduce exposure

  • Negative → stay defensive

This mirrors how some institutional portfolios manage risk-on/risk-off cycles.

Step 4: Build Clear Exit and Re-Entry Rules

A trend overlay fails if exits and re-entries are vague.

Common exit conditions include:

  • Index closing below your trend filter

  • MACD losing upward slope on weekly charts

  • Supertrend shift to bearish

  • Volatility spike that breaks market structure

Re-entries can use the opposite:

  • Price reclaiming the trend filter

  • RSI returning above 50

  • MACD regaining momentum

The rules must be consistent so that automation or semi-automation can execute them without ambiguity.

Step 5: Choose Review and Rebalancing Frequency

A hybrid portfolio is not a high-frequency system. You don’t want to micromanage price moves.

Typical schedules include:

  • Monthly review of trend filters

  • Quarterly rebalancing of the core allocation

  • Annual review of asset weights and risk limits

This keeps the system disciplined without unnecessary churn.

Step 6: Backtest the Combined Structure

When testing, don’t focus only on returns. Study how the hybrid behaves across different market environments.

Key points include:

  • Maximum drawdown and recovery time

  • Calmar Ratio

  • Stability of monthly returns

  • Response to bear markets

  • Behaviour during sideways phases

Hybrid systems often sacrifice a bit of raw CAGR but deliver significantly smoother equity curves, this is the main advantage.

Step 7: Deploy Through Tools You’re Comfortable With

The buy-and-hold part can stay in ETFs or index funds. The trend overlay can be automated through platforms like AlgoTest, Streak, Tradetron, or your own scripts if you prefer.

Final Thoughts

Stratzy offers simple, actionable frameworks you can study before automating your own version. It creates a clean pathway from manual ideas to algo trading execution.