Do trading systems stop working?

[miles123]

Hi there,

I have a trading system with clear entry/exit/stop/limit rules. I don't take trades very often, with setups occurring on average around 2-3 times a week.

I trade one index only.

I've forward tested it for around 17 months now and have around a 85% success rate with a 1:1 risk/reward ratio.

Having researched this topic, I can't find a clear answer, it seems like systems need to be tweaked over time, but has anyone experienced a system that has completely stopped working having had consistent results for over a year or so?

thanks

Jim

 

[tar]

Yes ofcourse , your win rate can go down significantly , maybe it wasn't working in the first place , it just happens that your system is going through a good batch . 17 months isnt much , i've seen trading systems collapse after 5 years of trading .

 

[tomorton]

A nice system will be responsive or filtered according to context. e.g. fewer or no signals generated as wider market direction becomes unclear or is reversing. Or you manually filter signals so that e.g. you ignore buy signals as the wider market is starting to tank. There are always clues to be gathered from correlating charts.

 

[malaguti]

Hi there,

I have a trading system with clear entry/exit/stop/limit rules. I don't take trades very often, with setups occurring on average around 2-3 times a week.

I trade one index only.

I've forward tested it for around 17 months now and have around a 85% success rate with a 1:1 risk/reward ratio.

Having researched this topic, I can't find a clear answer, it seems like systems need to be tweaked over time, but has anyone experienced a system that has completely stopped working having had consistent results for over a year or so?

thanks

Jim

It doesn't necessarily stop working, it depends on how much effort was done to refine the entry/exit signals which could lead to curve fitting. Then there is whether optimisation was used in any of the parameters and whether the periods reflect all market phases.
Systems shouldn't need to be teaked. if they do, then they are more reliant on market cycles which inevitably change and are therefore less reliable

if your system is simple, and can "adapt" to trend state then I'd say its more robust and could be left alone

 

[kalott]

http://www.investopedia.com/university/dowtheory/dowtheory3.asp

 

[Solas0077]

All system stop working when market conditions change so that they cannot longer deal with them.

"I''ve forward tested it for around 17 months now and have around a 85% success rate with a 1:1 risk/reward ratio. "

These number mean nothing if the system is curve-fitted because it will continue working well until the market changes behavior. How significant was your system in forward testing? This blog offer a good methodology for testing for significance of a golden cross system but the principles apply to all systems. You can try to estimate the system significance in a similar way.

 

[miles123]

Thanks for the comments so far, really useful.

I don't think I'm curve fitting, although there has been a few, what I would consider minor changes along the way. I can see its a fine balance between getting to know how a system interacts with the market and trading accordingly and fitting a system in retrospect to new market conditions.

I Intraday trade off 5min bars, I'm not sure it's compariable to the golden cross system as from what I have read that seemed to of failed due to the uptrend ending. In conclusion It seems very difficult to determine whether a system has statistical significance until its too late!

When you say "all systems stop working when market conditions change so that they can no longer deal with them" what do you mean by market conditions?

Aside from a market trending up or trending down or going sideways with volititility or without, what else is there?

 

[kalott]

"I don't take trades very often, with setups occurring on average around 2-3 times a week."


"I Intraday trade off 5min bars"


no overtrading then

 

[bredin]

No method based on the things that make a market move can ever stop working.

Only "systems" that target specific market conditions can stop working.

G.

 

[Steven2805]

I would say its more a drop in accuracy rather than a complete failure. Back-testing results are always very subjective and often times "fit".. I would say half any expected results and if its still profitable then you might have something. In your case 85% / 2 = 42.5% W/L which is actually quite respectable however your R/R of 1/1 gives no where to make a profit. A 1/2 would result in a net positive

100 trades with a 10k account risking 1% (42 W/L, R/R 1/2)

42 Wins
57 Lose

£5700.00 Lose
£8400.00 Win
____________
£2700.00 Profit (27%)

Vs your prediction

100 trades 10k risk of 1%

85 Win
25 Lose

£8500
£2500
_______
6000.00 (60%)



-------------------------------------------------------

I would even consider cutting 27% in half, Which would give you a target of about 1.10% per month

A lot of people are going to say the numbers are far to low but reasonable expectations are something you need early on

 

[pro4Xtrader]

Hi there,

I have a trading system with clear entry/exit/stop/limit rules. I don't take trades very often, with setups occurring on average around 2-3 times a week.

I trade one index only.

I've forward tested it for around 17 months now and have around a 85% success rate with a 1:1 risk/reward ratio.

Having researched this topic, I can't find a clear answer, it seems like systems need to be tweaked over time, but has anyone experienced a system that has completely stopped working having had consistent results for over a year or so?

thanks

Jim

If system stopped working then it is not a valid idea. What could happen is excessive draw down which can happen if volatility increases. But overall static systems have to be re-optimized every 3 months or so. A good system must be flexible, changing dynamically depending on the market.

 

[drtro]

Technical indicators come and go. What matters is a strategy backed by volume. Supply and demand isn't a trend or fad. If you develop a strategy that buys when the big money buys and sells when the big money sells, then you would perform better than any crossover or RSI/MACD strategy. I watch volume on swing highs and lows for trading. If there's more than average (typically on low of days) then you have a greater edge buying there than any other swing low. Typically you won't see high volume on swing highs unless a downtrend is coming. I usually look for low volume on swing highs, signalling exhaustion in the trend.

Nothing is a holy grail, but ignoring supply and demand is like driving down the road not caring about the traffic around you and running every red light.

 

[Jingles]

YES trading systems stop working. read the story of Long Term Capital Markets.

do a google search of it.

Twenty years ago, one bond-trading hedge fund grew from launch to over $100 billion in assets in less than three years. It saw yearly returns of over 40 percent. It was run by finance veterans, PhDs, professors, and two Nobel Prize winners. Everyone on Wall Street wanted a piece of their profits.

But by 1998, that firm was primed to expose America's largest banks to more than $1 trillion in default risks. The demise of the firm, Long-Term Capital Management (LTCM), was swift and sudden. In less than one year, LTCM had lost $4.4 billion of its $4.7 billion in capital.

I do not want to hurt you feelings but I think you have no chance with your so called system or without it. The correct decision is to abandon any ideas of trading in total and go find a different hobby. The same for everyone else around here. Trading is insanity. There are no winners. the idea that you might become a winner is an illusion. a dream that can never happen. Wake up from the dream before it turns into a nightmare.