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I am very intrigued by the concept that trading systems will over time lose their edge and ultimately start to fail. I have been playing around with a volatility breakout system and have done a great deal of testing with it using ASX data, and it has shown reasonable promise. This system is very very short term, most trades (99%) lasting <5 days and therefore the overall exposure to the market is very small.

Recently, I purchased some historical data from FTSE, just to see how the system would perform on an entirely fresh batch of data.

Enclosed below is the equity curve arising from running the system. Please note the following:

1. I don’t have the actual codes of the stocks belonging to the FTSE 100, so just arbitrarily set up a very simple filter that calculated MA(V*C,100) for every stock on the FTSE and selected the top 100, just nice and quick.

2. No optimisation has been done on the FTSE data. All the parameter values have been set using ASX data.

3. The system appeared to run very well, starting from ~end of 86 (start of my test data started) all the way through to the middle of 99 (some 13 years), before it literally fell off a cliff and has been in a down trend ever since.

My questions are as follows:

1) Has this system hit its used-by date ?
2) How can something that has worked so well up to a period of time suddenly stop working altogether.
3) Given the short duration of the trades involved, one would not think that the professionals would have had the opportunity to study these volatility breakout strategies to any great degree and therefore come up with any counter-strategies to fade them ???
4) To date, I have not seen any such marked deterioriation in the Australian market. Is this because the ASX market is too small a market for the professionals to implement their fading strategies, as there are there are much bigger fish to fry elsewhere ??

<blockquote data-quote="bingk6" data-source="post: 199830" data-attributes="member: 4259">I am very intrigued by the concept that trading systems will over time lose their edge and ultimately start to fail. I have been playing around with a volatility breakout system and have done a great deal of testing with it using ASX data, and it has shown reasonable promise. This system is very very short term, most trades (99%)&nbsp; lasting &lt;5 days and therefore the overall exposure to the market is very small. Recently, I purchased some historical data from FTSE, just to see how the system would perform on an entirely fresh batch of data.Enclosed below is the equity curve arising from running the system. Please note the following:1.&nbsp; &nbsp; I don’t have the actual codes of the stocks belonging to the FTSE 100, so just arbitrarily set up a very simple filter that calculated MA(V*C,100) for every stock on the FTSE and selected the top 100, just nice and quick.2.&nbsp; &nbsp; No optimisation has been done on the FTSE data. All the parameter values have been set using ASX data.3.&nbsp; &nbsp; The system appeared to run very well, starting from ~end of 86 (start of my test data started) all the way through to the middle of 99 (some 13 years), before it literally fell off a cliff and has been in a down trend ever since.My questions are as follows:1)&nbsp; &nbsp; Has this system hit its used-by date ?2)&nbsp; &nbsp; How can something that has worked so well up to a period of time suddenly stop working altogether.3)&nbsp; &nbsp; Given the short duration of the trades involved, one would not think that the professionals would have had the opportunity to study these volatility breakout strategies to any great degree and therefore come up with any counter-strategies to fade them ???4)&nbsp; &nbsp; To date, I have not seen any such marked deterioriation in the Australian market. Is this because the ASX market is too small a market for the professionals to implement their fading strategies, as there are there are much bigger fish to fry elsewhere ??</blockquote>

[QUOTE="bingk6, post: 199830, member: 4259"] I am very intrigued by the concept that trading systems will over time lose their edge and ultimately start to fail. I have been playing around with a volatility breakout system and have done a great deal of testing with it using ASX data, and it has shown reasonable promise. This system is very very short term, most trades (99%) lasting <5 days and therefore the overall exposure to the market is very small. Recently, I purchased some historical data from FTSE, just to see how the system would perform on an entirely fresh batch of data. Enclosed below is the equity curve arising from running the system. Please note the following: 1. I don’t have the actual codes of the stocks belonging to the FTSE 100, so just arbitrarily set up a very simple filter that calculated MA(V*C,100) for every stock on the FTSE and selected the top 100, just nice and quick. 2. No optimisation has been done on the FTSE data. All the parameter values have been set using ASX data. 3. The system appeared to run very well, starting from ~end of 86 (start of my test data started) all the way through to the middle of 99 (some 13 years), before it literally fell off a cliff and has been in a down trend ever since. My questions are as follows: 1) Has this system hit its used-by date ? 2) How can something that has worked so well up to a period of time suddenly stop working altogether. 3) Given the short duration of the trades involved, one would not think that the professionals would have had the opportunity to study these volatility breakout strategies to any great degree and therefore come up with any counter-strategies to fade them ??? 4) To date, I have not seen any such marked deterioriation in the Australian market. Is this because the ASX market is too small a market for the professionals to implement their fading strategies, as there are there are much bigger fish to fry elsewhere ?? [/QUOTE]

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