Telling ordinary variance from a strategy that has genuinely stopped working.
6 articles
The worst run in the record is one draw of many. How to resample the same trades thousands of times, read the distribution of maximum drawdown and losing streaks it produces, and size so the bad draws are survivable.
A system never reviewed drifts; one reviewed after every loss is switched off by noise. How to set a weekly, monthly and quarterly cadence, put control limits on the record, and write the kill criteria before trade one.
Before a setup is trusted with money it is trusted with a notebook. How to replay a chart candle by candle, record every trade the rules would have taken, and know how many trades it takes before the numbers mean much.
Recent and vivid events dominate judgement out of proportion to their weight. What that does to strategy assessment, and the sample sizes that actually mean something.
The strategy is fine and the account is down. What that period does to judgement, and the decisions that turn an ordinary drawdown into a serious one.
Every strategy has losing runs. Telling an ordinary one apart from a genuine failure is the difference between abandoning something that worked and persisting with something that stopped.
Position sizingRisk managementDisciplineTrading journalCognitive biasTrading emotions