When A System Breaks

Sept. 4th, 2019

What’s my biggest trading nightmare?

It’s this:

This chart, or the fear of this chart, has probably lost me thousands of dollars. Maybe tens of thousands.

The reason?

I’m afraid of what happened at the end of that chart.

Do you see the nice rise from the bottom left to near the end? That was the rise of this daytrading robot from 2004-2016.

Do you see how the chart has then topped out and rolled over downward since then? That was the fall of this daytrading robot from 2016-2019.

It appears that the system just broke. And it happened in “real time.”

I first optimized this system on the AUDJPY in 2012. Of course, I had no idea what I was doing then, but I spent a lot of time on it. I optimized quite a bit and you can see how the curve was up through 2012 (around trade #1000 on the picture above).

It looked good enough so I traded it live. And it went fine for a while.

Then, several months later, I started to get a bad feeling about it. I didn’t like how the trades were going. I got angry a lot. I wrote posts about it. I yelled at my screen.

Not only was the losing starting to happen more often, the trades were becoming tortuous. They’d happen in fitful streaks all in a row and then it would go dormant. It would get into a trade and then just slowly fall downward toward its stoploss for 12-24 hours or more.

It became the most un-fun instrument I’ve ever traded. So eventually I stopped. I was still up in it at the time but I was done.

Since then, as you can see, it’s slowly fallen a little each year. Once it rolled over, it hasn’t come back.

It’s the perfect definition of a broken system, right?

And it’s that fear that’s kept me from trading profitable robots (because I want to watch them a long time to make sure they don’t break).

It’s that fear that’s kept my trading size WAY too small.

So is there a solution?

Is fear just a part of a trader’s life? Do all systems break?

Or is there a way to make a system less fragile?

Specifically, is there anything I could’ve done to make this chart not end up in disaster?

We’ll talk about that in our next email.

Talk to you soon.

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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.