Why Trading Strategies Are Not Working: Identifying and Avoiding Common Pitfalls

Why do trading strategies stop working? When do you stop trading? How can you avoid or minimize that trading strategies stop working? These are the most important aspects in trading because most trading strategies stop working – sooner or later. Many traders would hope a strategy lasts forever, but markets are not meant to be static. Markets are dynamic and evolve and change both gradually or suddenly. You better be prepared or at least minimize damage if (or when) it happens.

Strategies stop working mainly because of curve fitting, structural and cyclical changes, survivorship bias, behavioral mistakes, commissions, and slippage. Short-term trading is a zero-sum game and you need to accept that trading strategies at one point stop working. You better be prepared!

The better the foundation of your business plan, the fewer trading strategies stop working. The more you prepare for inevitable trading hiccups, the less they matter. Imagine yourself having one or several trading strategies that are literally handing you money on a silver plate. Then one day everything stops working and you are stranded with no strategies that seem to work! You don’t want to be in that situation.

Unfortunately, trading strategies do stop working. In this article, we look at reasons why trading strategies are not working or stop working and how you know a trading strategy stops working.

We backtest trading strategies and systems on a daily basis. If you are looking for a short term trading system, please click on the link (we have made hundreds of strategy backtests).