Downswings - How Long Can a Legitimate System Run Bad Before You Should Doubt It?

[SharpEddie47]

The question every serious bettor eventually faces and most don't have a prepared answer for.

2018. My most significant downswing on record. Eleven weeks. NFL season. The model was producing selections. I was executing correctly. I was losing consistently.

By week eight I'd started questioning everything. Were the edges I'd identified real. Had the market changed without me noticing. Was my sample size from previous profitable years actually sufficient.

By week ten I was on the verge of making systematic changes to a methodology that had worked for seven years prior.

Didn't make the changes. Held the system. Weeks twelve and thirteen recovered most of the losses. By the end of the season the P&L was mildly negative. Within variance.

The question I couldn't answer during week eight: was this legitimate variance or real edge disappearance.

The math says a genuine 54% system at evens will produce a run of ten or more consecutive losses roughly every eight hundred bets. The math is cold comfort when you're in it.

How do people think about this. What's the threshold where doubt becomes reasonable rather than just emotional.

 

[Klaus]

Have a pre-committed framework for this specific question.

Before the season: I calculate the expected maximum drawdown for the model given historical edge and variance parameters.

The calculation produces: given a genuine 3.8% edge and the variance distribution of my historical results, I expect to see a maximum drawdown of X% of bankroll during any given season with 90% probability.

If my actual drawdown exceeds that expected maximum: I investigate the model.

If my actual drawdown is within the expected range: I continue executing the system.

The decision rule is pre-committed before the bad run begins.

Making the decision during the bad run is making it in the worst possible psychological conditions.

The pre-committed rule removes the decision from the emotional state.

This season: experienced a seven-week losing period. Within the pre-calculated expected drawdown range. Continued executing. Recovered in weeks eight through twelve.

The framework held because I'd built it before I needed it.

 

[FadeThePublic]

Three significant downswings in fifteen years.

Each one I was convinced I'd lost the edge.

Each one eventually resolved as variance.

But the honest thing is: I had no reliable way to distinguish variance from real edge disappearance while I was inside the bad run.

The retrospective clarity is easy. "That was just variance." The prospective certainty is unavailable.

The specific thing I've found useful: asking what would have to have changed in the market to produce this bad run if it isn't variance.

If the answer requires specific identifiable changes I can test: worth investigating.

If the answer would require the entire market structure to have shifted in undetectable ways: almost certainly variance.

The bad run that has a coherent external explanation is worth taking seriously.

The bad run that would require implausible market changes to be explained as edge loss: probably variance.