Learn Algorithmic Trading

Seasonal profit decay

In the previous section, we talked about how algorithmic trading strategies have many underlying assumptions. Seasonality, which is a concept we covered in one of our chapters, is an assumption that dictates a trading strategy's profitability. For a lot of asset classes, their price moves, volatility, relationships with other asset classes, and expected behavior vary quite predictably. Trading signals and trading strategies need to account for these differences due to seasonal factors and adjust and adapt accordingly; without that, the profitability can vary over time and might not live up to the expected performance. Properly understanding the seasonality factors involved and the impact on the trading strategy performance ...