Has the strategy stopped working or is it to reaching a new max drawdown

rvsw said:
I have a strategy which has been working well for the past about 1 1/2 years now it is producing a maximum drawdown that I have not seen in my testing in the past 5 years of back testing data. Added to it, it is also seeing maximum number of consecutive trades that are in a loss. How do we determine whether a strategy has stopped working? It may also be possible that this is just a new maximum drawdown and eventually the strategy would start performing.
In general, how do we find out whether it is time to discard a strategy or to modify parameters?
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Fooled by randomness:

1. Your strategy worked in the past 1 1/2 years just by chance, or,

2. Your strategy is indeed working in the 1 1/2 years, but probability messed you up lately with a string of losses. If so, eventually it will turn to a string of wins.

3. The herd found out about your winning strategy and all crowded into it making it no longer effective.

How do you know which is real?

My thinking is 5 yrs backtest and 1 1/2 years walked forward are just not long enough periods for verifying it to be a winning strategy. If you believe you truly have an edge, you should have the conviction to stick it out a few more years to find out.
 
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rvsw said:
I have a strategy which has been working well for the past about 1 1/2 years now it is producing a maximum drawdown that I have not seen in my testing in the past 5 years of back testing data. Added to it, it is also seeing maximum number of consecutive trades that are in a loss. How do we determine whether a strategy has stopped working? It may also be possible that this is just a new maximum drawdown and eventually the strategy would start performing.
In general, how do we find out whether it is time to discard a strategy or to modify parameters?
More...

You are not giving enough information to really tell. But the few comments already mention the very obvious mistkes.
 
dozu888 said:
they all stop working eventually...
be
all 'edges' are self defeating except they are not (e.g. you have some advantage that others can't get to... inside info, proximity to the exchanges etc).

if your 'edge' is just some market conditions that others can discover also, they will.

then what happens is this market condition is crowded with traders and you all become vulnerable.... another group of guys come in and kill you.

better get busy and figure out some new edge
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I don't agree. either the market is driven by the same rules or not.

Greed

Fear
 
TommyR said:
that strategy couldnt take more than about 50k so you may be responsible for the overcrowding.
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Which comes back to bad testing. If your software does not have any option to consider it, you should consider moving on to a software that does.
But who really things thepast 5 years are representative for the fear/greed ratio in the market?
 
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