I sometimes fall into a common trap: the search for the "Holy Grail System." It's tempting to believe there's a system out there that can win over 80% of trades, never have a losing month, and have a positive skew return distribution. However, it's important to remember that such a system may not exist. The quest for the Holy Grail is just a path to overfit and over-optimized systems.
My pursuit of perfection often impedes progress. To make matters worse, this pursuit is usually driven by my emotional need for validation and security. Rather than searching for reasons why a system may not work, I take shortcuts to prove it does. This creates a cycle of developing an overfit system, trading it live, losing, and needing to develop a “better” system to recover losses.
So, what is the solution if there is no Holy Grail system?
A solution is to view your investment portfolio as a quiver and systems as your arrows. Design multiple types of arrows to handle the different tests and obstacles one encounters to become a “Market Wizard.” Make sure that the systems are simple, specific, and robust. Design distinct systems for capturing momentum, mean reversion, and particular patterns. One system doesn’t need to do everything, and plenty of systems capture specific edges.
Knowing what products to trade and when to trade a system is generally more important than the execution. If you want to learn about regimes, check out this post: Rule # 4: Define the Current Regime.
Finding an edge in the market is challenging, so there are always trade-offs. It is important to develop systems where you acknowledge and accept their weaknesses, and then stay consistent with them. Be accepting of the good and stop pursuing the perfect.