Adrian Reid lists common mistakes in systematic (algorithmic) trading: failing to monitor strategy performance and edge stability; over-leveraging a single strategy instead of diversifying, risking account blow-up; and blindly adopting others' algorithms without testing, adapting, and monitoring them. He emphasizes that past backtests don't guarantee future performance and the importance of staying ‘in the game’ to compound returns over time.
Chapters
I think, I think a big one is believing that any trade system algo strategy will make you rich. In the short term, it doesn't matter how good a back test looks, something can always go wrong. The market dynamics can, can change the market kind of structure, microstructure can change, the level of volatility can increase and decrease. So so many things can change. So I think when, when traders have a strategy and they're blindly following it, they're exposing themselves to breakage of the strategy you want to monitor. So the mistake is not monitoring the performance of the strategy in the edge in the strategy. So you want to know is the strategy still performing? Is the edge stable and consistent? If you do a backtest and you see the equity curve kind of curving over, flattening out, getting more volatile, these are warning signs. If you see the, the average profit per trade dipping or the win rate dipping, there's a warning sign. So the biggest thing is not monitoring. Second thing is putting too much pressure on the one strategy to make you rich. You know, it's like, oh, it's a good strategy. Look how smooth the equity curve is. I'll go in with 2 times leverage, 5 times leverage, 10 times leverage in crypto or in, you know, other leveraged instruments and believing that nothing can go wrong because the back test shows that nothing went wrong. But just because nothing went wrong in the past doesn't mean nothing can go wrong in the future. So the mistake there is too much leverage and not realizing that the future is different to the past. And we want to make sure no matter what happens as traders, we stay in the game. You know, we have to stay in the game. Otherwise, you know, if we blow up, we're back to zero. We've wasted years if we blow up our account and we have to save up another stake and then we have to start trading and we have to build our confidence again and then we have to compound it's soul destroying for your future self. If you think 10 years from now and you never blew up and you just compound the whole way, you do very well. But if you, if you get 10 years in, you blow up and you have to start again 10 years from now, you're so much further behind. So the, the mistake is, is blowing up, putting too much pressure on one strategy to make you rich quickly instead of diversifying broadly enough.
And I think probably the third big mistake from an algo perspective is just taking someone else's algo and blindly trading it. You know, oh, buy an algo, put it on auto trade and sit back in the Bahamas, right? But, you know, you can't just buy an algo and trust that it's going to make you rich. You have to actually test it, evaluate it, make sure it's stable, make sure it's robust, monitor it, and, you know, make sure, make sure you make it your own so that you can really trust it. Otherwise the drawdown is going to be bigger than you expect. You're going to freak out at the worst possible moment and losses as a result.
