High Probability Trading Strategies are Fragile

Antifragility is found in natural, or biological systems. Most man-made systems cannot be antifragile as they are not inherently self-correcting, or lack the ability to self-improve. A washing machine for example can be at best robust and last a long time, but it eventually wears down after repeated use. It cannot improve or benefit from the stress put on it.

There are some exceptions however. Some made made systems that are antifragile, mostly due to the decentralization and complexity, such as the US economy. It goes through cycles where stress, destroys the weak institutions and companies, and they get replaced with better ones.

Economies fail when governments try to smooth out the stress and volatility through regulation, subsidies and accommodative monetary policy. However removing volatility from the system removes vital stressors and shock, which leads to a fragile system.

The absence of the volatility deprives the system of vital corrective information and leads to misallocated resources…which leads to even larger damaging shocks in the form of recessions and depressions. The attempts to create tranquility and equanimity ultimately leads to fragility.

It is the same for high probability trading systems. And systems that focus on the management of risk. These systems focus on removing risk from the system, however there’s a caveat, they create tamed high probability trades, and in return must accept account busting risk. The high probability trading system is fragile.

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