When Your Setup Stops Workingeric

This is the fifth special topic in the ASX order book series, after halts, placements and SPPs. It's about a moment every trader in the journals I read went through, usually more than once: the setup that paid for months suddenly doesn't.

The question at that moment is always the same, and getting it wrong is expensive in both directions. Is this variance, or has the market changed? Abandon a good strategy during a normal drawdown and you lock in the loss. Keep trading a strategy whose edge has gone and you bleed indefinitely.

Step one: is it within normal variance?

Most traders massively underestimate how long normal losing stretches last. The win rate vs payoff post showed how often long losing streaks occur by pure chance. The same logic applies to drawdowns.

The practical test is to compare your recent results against what your historical statistics would produce by chance.

Copy import numpy as np

def drawdown_percentile(hist_r: np.ndarray, recent_r: np.ndarray, runs: int = 20_000, seed: int = 0):
    """How unusual is the recent stretch, given historical per-trade R results?
    Resamples historical trades to build the distribution of results over the same number of trades.
    """
    rng = np.random.default_rng(seed)
    n = len(recent_r)
    sims = rng.choice(hist_r, size=(runs, n), replace=True).sum(axis=1)
    return (sims <= recent_r.sum()).mean()

# a result around 0.2 is unremarkable; below 0.02 is genuinely unusual

If your recent stretch sits comfortably inside the historical distribution, it's probably variance. If it sits in the extreme tail, something may have changed. This doesn't prove anything on its own, but it stops you from reacting to noise.

Step two: look for a cause

Variance has no cause. Regime change usually does. These were the causes that showed up in the journals:

Market-wide activity on the ASX varies a lot from year to year. In a year when listings shrink and daily value traded falls meaningfully, a setup that depends on liquid, active opens simply has less raw material to work with.

Step three: what to do while you find out

The responses that worked were remarkably consistent across the journals.

Step four: adapting when it really has changed

When the evidence says the regime has genuinely shifted, the traders adapted in a few ways.

Follow the volatility. Intraday edges need movement. When one sector went quiet and another heated up (commodity cycles were a frequent driver), the traders who did best moved their attention to where the action was, while keeping the same core skills.

Add a complementary style. Several traders who started as pure scalpers added a slower style alongside: multi-day swings, catalyst trades held overnight, or a value-oriented portfolio. The scalping skills still mattered for entries, but the extra style kept the account growing during quiet intraday regimes. Some ended up primarily as swing traders.

Adjust to structural change. When market structure changes (auction arrangements, broker platforms, product rules), the core idea usually survives but the details need re-learning. A period of small size while you recalibrate is cheap insurance.

Retire it. Sometimes an edge really is gone. Accepting that is easier if you track statistics per setup and have other setups to fall back on.

Press when it comes back

The flip side of regime awareness is pressing when conditions suit you. When a regime turns in favour of active traders, it tends to happen for many of them at once: record months cluster, because the market is finally serving up the volatility their styles need. The traders who'd survived the quiet stretch with their capital and discipline intact were the ones who could take full advantage.

That's the real reason to manage a bad regime carefully. Not just to lose less, but to still be there, sized correctly and thinking clearly, when the good regime returns.