When to change a strategy and when to sit tight
intermediate
Automated material · TradeAlmanac editorial deskPrepared by a language model from our stored data and checked by an editor.
Every strategy goes through periods of underperformance. Telling the temporary from the structural is the whole question at that moment.
Signs that you should NOT change
The lag is explained by the asset class the bet rests on not working. Value lags for years during periods when growth dominates — that is a property of the approach rather than a breakdown.
The lag does not exceed the periods historically observed for that approach.
You cannot articulate what exactly broke beyond "the result is worse than expected".
Signs that you should
Your circumstances changed: the horizon shortened, the need for money changed, the ability to live through a drawdown changed in practice — The horizon: the one parameter you cannot change by deciding to.
A flaw in the construction surfaced: the portfolio turned out concentrated, the costs higher than assumed, the tax arrangement inefficient.
The basis disappeared: the approach rested on a condition that no longer exists.
How to decide
A revision rule written in advance beats a decision in the moment. For instance: review once a year by calendar and only then.
What helps
A journal — A trading journal: why no learning happens without one — and an honest comparison with a benchmark — The benchmark: what to compare your result against honestly.
Prepared by a language model from our stored data and checked by an editor.
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