Originally published in French on objectifeco.com, September 3, 2014. The site was purged in 2016; this text survives only in the Internet Archive (Snapshot). Translated, not rewritten: what follows is the original argument as it was made, including what time has since proven wrong. Where that happens, you'll find a note from the desk, dated 2026.
Logically, you're going to say to me: if a strategy can't trade properly in certain conditions, couldn't we just filter those conditions out, so it only trades when things suit it best?
You can imagine that if a solution like that actually existed, I'd have built it and bolted it onto every single strategy I run.
Here's what you need to understand to see why it's a false good idea:
A filter is, by its very nature, late.
Say I want to build an indicator that filters for market rallies: by the time the filter tells me "the market's rising," it's because the market has already risen by a certain amount.
Same thing in the other direction. For the filter to spot the end of a rally, the end of the rally has to have already happened: a reversal, in other words. So the filter will always see that ending with a delay.
As a rule, barring the odd special case, these filters, late to switch on (so you miss the first trades) and late to switch off (so you end up holding bad positions right at the end), do more damage than the problem they were supposed to protect you from.
Let's not forget, either, that plenty of behaviours are fleeting. Or that some show up for a short, completely isolated stretch: once a month, say.
The filtered version of a strategy looks like a good idea on paper, but in reality it clearly drags down performance without adding any real value: no reduction in risk, no shortening of the losing stretches.
So you have to accept that a strategy is an idea that works over the long run, alternating between good phases and less good ones.
Some strategies spend more time in the good patches than the bad, but when the accident does hit, it tends to hit harder.
Others, the other way round, win far more rarely, but far bigger, once they're done stringing together false signals.
You can now see why it matters so much to understand that a strategy doesn't trade prices: it profits from the behaviour it was built to exploit.
Its performance comes from that behaviour being present in the market at a given moment, and its drawdowns come from that behaviour being absent.
Once again, none of this has anything to do with its ability to trade.
Part of a series. This article belongs to Market Regime: Every Strategy Is Built for One Kind of Weather. Related: How to Give Yourself a Better Chance of Success When Opening a Position and You Always Have to Trade the Same Way: True or False?. Background: trend following in the Ouinex glossary.
About the author. Samuel Rondot has traded since 1995, self-taught. Between 2009 and 2017 he published around 300 articles on objectifeco.com, abcbourse.com and his own blog, many of them drawn from what he saw in hundreds of client accounts. Objectifeco wiped its archive in 2016; the Internet Archive kept a copy, and every article republished here links to its original. He now runs the Strategy at Ouinex.
Trading leveraged products carries a high risk of loss.
