Yesterday we decided not to trade the system. We’d found that when the market had gapped and was in some direction by over 4% – then we found that by and large we don’t make positive returns if we traded in that direction.
By the time our first trade was in the market had gapped down 4%, and was down a further two percent. At this point, there wasn’t a point trading – and our system was throwing out shorts – so we decided, heck, let’s not do it. This is evident in back tests too, so there’s some element of ‘quant’ in it.
But we thought why not look at the days we haven’t traded for any reason – meetings, illnesses, holidays – and see what happened. Amazingly, more than 90% of such days were our system underperforming the market, or the market going down tremendously and our system going down in small absolute terms. Either ways we had outperformed the system or outperformed the market.
I call this OBHA – Outperformance By Hanging Around. Sometimes not doing anything is worth it.