Rethinking Quantitative Trading: Why Market Context Matters More Than Historical Patterns

This conceptual preprint argues that the effectiveness of quantitative trading depends not only on the identification of historical patterns but also on an understanding of the broader market contexts within which those patterns emerge. Drawing upon insights from behavioural finance, the Adaptive Market Hypothesis and systems thinking, the manuscript examines why many successful trading strategies eventually experience declining performance as market conditions evolve. According to Lo (2004), financial markets are shaped by competition and adaptation, suggesting that investment strategies may become less effective as participants adjust their behaviour. Similarly, Taleb (2007) highlighted the limitations of relying excessively on past observations when rare and unexpected events can substantially alter market outcomes.