“Yes, but how can your system know if XYZ happens and markets go haywire?” This is one of the two most frequently asked questions about systematic trading strategies I’ve used over the last 20 years. Most traders tend to rely on analyses of supply and demand fundamentals to form a judgment about future price changes.

My contention is that this simply does not work and I can make a strong case to back this up (see here, here or here). I can also offer evidence that my systematic approach does work (see here or here) even if I know nothing about the supply and demand economics of most markets I cover. This usually elicits the objection that my system can’t know if some XYZ event might happen tomorrow  (recently, XYZ tended to refer to Trump tweets), upsetting the markets and rendering my strategies ineffective. Recent experience afforded me an (almost) perfect answer to this question (plus another important issue related to trend following). Continue reading →