The performance of a mechanical trading system often degrades when historical testing ends and real trading begins because, despite their best efforts, system designers often fail to account for dramatically different market conditions.

The May 2008 and June 2008 issues of Currency Trader discussed a setup that traded the Euro/U.S. dollar pair (EUR/USD) based on the relationship between short- and long-term momentum calculations ("Short-term momentum signals in the Euro" and "Euro momentum system, interrupted"). Although the strategy was not traded with real money after those articles were published, subsequent monitoring of its signals show its pre- and post-publication performance were quite different. Within a few months, the strategy turned to the downside, and not surprisingly, this switch corresponded to the sea change that occurred in the markets in the latter half of 2008.