Let the market regime dictate the best strategy

"When you have eliminated all which is impossible, then whatever remains, however improbable, must be the truth."

– Sir Arthur Conan Doyle

Over the years, I have come to believe that the two primary determinants of performance are position sizing and market regime. Trade too big and you could be out of business. Trade too small and you do not have a business. Secondly, seasoned market participants usually have several strategies to cope with different market types.

The difficulty is which strategy to use when and more importantly when to fade them. This comes down to regime definition. The floor/ceiling method could potentially change the way you trade markets.

There are two types of strategy: mean reversion and trend following. Mean reversion works best in range-bound markets. The price oscillates around a mean in a semi-predictable fashion. Mean reversion strategies perform poorly in...