It Works, Until It Doesn't?

[AriaS]

Losing streaks happen and it’s okay. The question is whether they happen too often and eventually erase our profitability.

The reason this happens is almost always the same: poor optimization and lack of robust validation. When a system is tuned only on in-sample data, it naturally finds the easiest paths to profit — but it also “inherits” the weaknesses of that dataset. Those weaknesses show up later as repeating drawdowns.

The way to break this cycle is clear:

• Use robust optimization — don’t just optimize for the best curve, but stress test across different parameters and time segments.
• Validate out of sample — separate test sets (or even walk-forward validation) reveal if the system is truly adaptive or if it’s just curve-fitting to a specific market phase.
• Study losing streaks directly — when testing, don’t just look at PF or Sharpe; analyze the distribution of drawdowns and the pattern of consecutive losses.

When this is done properly, the result is a strategy that may still lose sometimes (all strategies do), but the losing streaks don’t repeat in the same mechanical way. Instead, they become irregular and manageable — which is exactly what you want if you’re building for long-term survival.

In trading, profits take care of themselves if risk is controlled. And the best way to control risk is to make sure your system doesn’t keep walking into the same trap. Optimization + out-of-sample validation is how you close that trap before it closes on you.