How to detect when a strategy is failing - Kevin Davey

How to detect a failing trading strategy before the damage compounds - six methods from a World Cup trading champion with an aerospace engineering background. ► Full article: https://bettersystemtrader.com/6-ways... In this episode: Why the single drawdown figure from your backtest is a historical artifact, not a law of physics - and what to use instead How Monte Carlo simulation gives you a probability distribution for stopping thresholds rather than a single guesswork number The most important rule Kevin has: define your stopping criteria before you start trading, not during a drawdown Six methods ranked from simple to rigorous: drawdown rules, consecutive losses, Monte Carlo, performance metrics, walk-forward comparison, and out-of-sample validation 0:00 Introduction 5:46 Method 1: Drawdown-based rules - the most common approach 6:21 The limitations of a single drawdown figure 7:19 Method 2: Consecutive losing trades as a signal 8:00 Statistical process control - the aerospace framework applied to trading 9:19 Method 3: Monte Carlo simulation for probability-based thresholds 10:24 How Monte Carlo simulation works in practice 11:46 Where Monte Carlo breaks down - three limitations 13:00 Method 4: Performance metrics out of norm 14:00 The most important rule: decide your criteria before you need them 15:00 Method 5 and 6: Walk-forward and out-of-sample validation Related episodes: 005: Kevin Davey on system development, the best systems, and backtesting:    • 005 Kevin Davey discusses system developme...   How to optimize strategies for robustness (properly) - John Ehlers:    • How to optimize strategies for robustness ...   "Effective Market Regime Techniques" with Cesar Alvarez:    • "Effective Market Regime Techniques" with ...   Kevin Davey spent 15 years in aerospace engineering overseeing quality control for jet aircraft fuel pumps before becoming a full-time trader and World Cup Trading Championship winner. His background in statistical process control translates directly into a rigorous framework for monitoring live trading strategies. The core message is simple but often ignored: define what "out of control" looks like before you start trading, write it down, and commit to acting on it when the threshold is hit. --- ► Better System Trader: https://bettersystemtrader.com ► Follow on X:   / bettersystrader   #TradingStrategies #SystemTrading #AlgoTrading Disclaimer: Trading in the financial markets involves a substantial risk of loss. All content produced by Better System Trader is for informational or educational purposes only and does not constitute trading or investment advice. ---