When an edge fades: retiring a scalping method

[Amanhasnoname]

Edges in short-term trading do not last forever. Competition, changes in market structure, and shifts in broker behavior erode them. A method that earned steadily for a year can slip into break-even and then into losses.

The challenge is telling a temporary drawdown from a decayed edge. Both look like a string of losses.

Tools for the decision include comparing recent results with the historical distribution, checking whether costs have risen, and testing whether the conditions that supported the edge still exist.

A set of pre-defined rules helps: for example, if results over the last three hundred trades fall below a certain level of expectancy, reduce size and investigate.

Equally useful is keeping several methods, so no single one carries the whole account. When one fades, others continue.

Holding onto a broken method out of attachment is expensive. So is abandoning a good one after a normal rough patch.

What criteria decide whether a method is in a drawdown or finished?