Adrian Reid explains that market-structure changes can render previously profitable trading systems ineffective (example: high-frequency trading firms colocating near exchanges and receiving faster data). He advises regular monitoring — he personally backtests systems weekly — and watching for divergences from normal behavior such as changes in drawdown profile, percentage of winners, or the size of wins/losses before digging deeper.
Questions this video answers
Weekly.
High-frequency trading firms colocating next to exchanges to receive data faster.
Chapters
Some things can change in the market that will change whether a system is working or not. For example, when high frequency trading came in, you know, the high frequency trading firms parked right next to the exchange, getting the data much quicker than everyone else. It changed the dynamics of certain systems and, and something stopped working. And this, if you, if you run a back test of different types of strategies, you can see that there's sort of inflection points in the market where it was working and then it was a little less good, and now it doesn't work at all, for example. So you do have to monitor your strategies for performance. And I was saying to the group yesterday, you know, I, or to one of the groups yesterday, I, I tend to back test my systems weekly just to see what's going on.
And what I'm looking for is a divergence from normal behavior. So if the, if the drawdown profile is different to normal, if the.
Percentage of winners is, drops outside the normal range, if the size of wins or losses changes outside the normal range based on the historical backtest, then I'll have a little, a closer look at the performance of the system. And I think that's really important. You're not looking with a view to changing your strategies all the time, but you're monitoring to just make sure that you're aware if something is diverging so you can dig deeper and have a good look at it. Sam.
