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Recently over the last couple of months, my system, AI TQQQ SQQQ swing has undergone a downswing. Larger downswings are common and normal for this system, but the current downswing is unique and too large. Looking into it more, I feel something about the market changed in terms of the system’s ability to model the market, versus the previous years that the system has existed. It’s also possible this change in the market was not a change, but a market regime that was always there, and that the system just hadn’t experienced it yet.
The above is a table of monthly (except for “before May”) win rates of the system, along with monthly performance. Before August 2024, the win rate was about 50% a month. Starting in August, the win rate has taken a drastic drop. There is likely something that the model isn’t modeling correctly. I’ve been trying to add/update the model to handle August and Sept 2024, but any changes that improved August/Sept 2024 would always destroy the performance before August 2024.
I’ve finally found a way to model August/Sept 2024 better, without destroying the results before. The changes also slightly improve results before August 2024. This change/update is now in the system as of today. Hopefully these changes will bear fruit and end the huge underperformance of the last couple of months.
Has anyone else using 100% non-discretionary systems noticed a change in the markets in the last couple of months?
The past 6 weeks have been bad for me as well as most other trend-following traders I know. It does seem like there have not been many good trends to follow lately. I don’t see any reason why this change in the markets would not be temporary. Perhaps it is just seasonal.
I believe that traders should not rely on one technique only, trend-following for instance.
Don’t get me wrong, I love to follow the market, it is still one of the best ways to make money.
However, I also use reversal techniques and range-trading strategies as well, depending on market conditions.
It requires more work of course (I have to watch multiple trading setups at the same time) but it pays in the long run, because now the trader is in sync with the current market’s mood, here and now.
Just my opinion, every trader has a different trading style of course.
Yes, the market has changed. The market always changes, The market is dynamic. The market will humble everyone. Best to have several algos at hand when your present algo stops working. This is common. What worked for certain time frame will eventually unravel and stop working. Good luck to all. Stay nimble.
If your trading system has a mathematical edge (trend-following or whatever) it will NOT stop working after a while.
Yes, it will experience the usual drawdown (even the most profitable systems will experience these inevitable drawdowns) but it will not stop working out of the blue.
Same thing with casinos, a roulette table or a black jack table can lose big one night, but it will ALWAYS recover from its “drawdown” the very next day or a few days later.
Why?
Because it already has a mathematical edge.
Oh yes, no doubt about it.
In fact the Smart Money is counting on our emotional response to market’s movements to make money…
That sounds good in theory, but not sure if that’s true in practice. Take the Turtle Traders. That set of rules worked great in the 80’s, but I doubt anyone is making money from those same set of rules today. However, the same concepts definitely apply today.
Oh no, I have read over 400 trading books over the years and backtested tons of systems and I can ASSURE you that the Turtles system (based on the famous Donchian system) STILL works to this day, you just have to change the look-back period.
Yes, I noticed that in my system too.
There was a similar phase in my backtests for my system. These phases usually occurred before a really big movement in the markets happened. This big movement ended the market phase and my system became significantly more profitable again.
However, I still have to contend with other challenges in my system.
Is everything different this time? Or do we have to wait years until the market returns to “normal”?
Personally, I’m all about hedging—it’s like my safety net. If you find the right hedge, you can take some of the sting out of that wild “market” rollercoaster. It won’t fix everything, but hey, at least you won’t feel like you’re hanging on for dear life all the time!
Good comments by all, yeah after a period the “new (to the model) environment that model doesn’t handle” ends and model starts working again. But, during that period where model doesn’t handle, will require model updating/retraining/reworking/examination/etc. Or hedging like SeanKelly11 suggested. Some sort of hedge built into the model is good.
Best to have several algos at hand when your present algo stops working. This is common. What worked for certain time frame will eventually unravel and stop working. Good luck to all. Stay nimble.
