Hi @nijinwilson
I would like to clarify that, in general, users often associate a period of underperformance with alpha decay. However, in practice, a drawdown phase does not necessarily indicate that an Algo’s alpha has decayed.
At Stratzy, we have multiple checks in place to help preserve the integrity of our Algos. One of these is controlling the capital capacity of each Algo. Once an Algo reaches its intended capacity, we restrict further allocations to help ensure that execution quality and Algo behaviour remain consistent. Based on our testing and live deployment, the current capacities of our Algos are well within acceptable limits, so users do not need to worry about capacity-related alpha erosion.
More importantly, every trading strategy goes through different market phases. There will be periods where the prevailing market conditions align well with the strategy, and there will also be periods where they do not. As a result, an Algo may go through a drawdown that can last for days, weeks, months, or, in some cases, even longer. This is a natural characteristic of systematic trading and should not be confused with alpha decay.
Profit and loss are both inherent to trading, and Algo trading is no exception. The objective of an Algo is not to avoid drawdowns altogether, but to execute its predefined logic consistently across varying market conditions.
I hope this helps provide a different perspective on how to interpret periods of underperformance.