Why Every Trading Strategy Works Some of the Time — But Not All of the Time
The Mirage of Permanence
If you’ve traded long enough, you’ve probably noticed a frustrating truth: almost every strategy “works” for a while, then suddenly stops working. Momentum runs lose steam, mean-reversion edges vanish, breakout systems start faking out, and even the most data-driven volatility models degrade.
This isn’t randomness or bad luck. It’s a feature of how markets evolve — not a bug. The same market forces that make a strategy profitable also ensure it will eventually stop working.
Markets Are Self-Correcting
The stock market is an adaptive ecosystem of competing minds — algorithms, funds, retail traders, and market makers — all trying to exploit the same inefficiencies.
When too many participants notice and exploit a pattern, the pattern disappears.
If everyone buys dips, dips stop working.
If everyone sells volatility, volatility spikes harder when it does return.
If everyone chases breakouts, false breakouts increase.
This self-correcting nature is what makes markets so difficult: every profitable edge plants the seeds of its own destruction.
What Environment Are You In?
Every strategy is optimized for a specific market environment.
A strategy tuned for one environment underperforms in another. For example:
A low-volatility carry strategy that compounds steadily in 2017 would have been crushed in March 2020.
A VIX-spike trading system that shines in 2020–2022 might bleed continuously in 2023’s calm regime.
Strategies Become Crowded
Once a strategy becomes popular — either through funds, social media — crowding reduces its payoff.
For example:
Momentum and volatility-carry strategies both delivered strong returns until assets under management grew too large.
When everyone was shorting VIX ETPs in 2017, returns looked “free.” When volatility returned in 2018, it wiped out years of gains overnight.
Crowded trades create nonlinear risk — they work until they catastrophically don’t.
The Role of Randomness
Even a robust strategy will experience periods of underperformance purely due to randomness.
A valid edge with a 55% hit rate can still lose money 10 or 20 trades in a row. Many traders abandon systems not because they stop working — but because they misinterpret variance as failure.
Exception: Human Behavior Keeps Some Strategies Alive
Despite constant evolution, some edges persist because human psychology doesn’t change:
Fear and greed cycles create overreactions.
Herd behavior fuels trends.
Loss aversion causes panic selling near lows.
That’s why mean reversion, trend following, and volatility spikes never disappear completely — they just rotate in and out of dominance.
Conclusion: Trading as Evolution
Every profitable strategy is like a living organism. It thrives for a while, adapts, competes, and eventually becomes extinct — replaced by new ones better suited to the current environment.
The trader’s job isn’t to find the one strategy that works forever. It’s to understand why strategies work when they do, and to evolve faster than the crowd when they stop.
That’s the real edge.
