Proper Preparation Prevents Poor Performance

We’re currently in the middle of fundraising for the Takahē Capital Global Markets US feeder, which just launched. As you’d expect when raising for a high-octane trend following fund, we’re having a lot of fascinating conversations. Not just with seasoned investors, but with people who, as my wife would say, actually have real jobs. Sorry, finance folks.

And that’s been one of the unexpected perks of this process. Trend following seems to attract a wide range of thoughtful, risk-aware individuals: engineers, business owners, doctors, professionals from defense, and tech.

Most of them aren’t traders by profession, but they intuitively understand risk and return. Some have learned it the hard way in their own fields. Others have spotted the striking parallels between what they do and how markets behave, and gone down the rabbit hole from there. They know that trend following is often a pain trade, and they’re okay with that. These are the kind of investors we like. Pragmatic, long-term, and resilient.

One of them we recently spoke to had an airforce background. As we were talking about strategy, execution, and the mental aspect of staying the course, he mentioned something called the "5Ps." Moritz S., who had done some flight training years ago, immediately recognized it. For me, it was new, and it stuck.

"Proper Preparation Prevents Poor Performance."

Clean, sharp, and absolutely on point. (There’s also a more colorful 6 P version out there, but let’s keep it polite.)

The 5Ps might sound like something you’d hear barked in a hangar, but they’re deeply applicable to what we do every day in trend following.

So what do the 5Ps actually mean for systematic trading? And why should you care?

Systematic traders live by rules. But those rules don’t write themselves. They come from rigorous preparation:

• Strategy design: Clear definitions of entry, exit, filtering, and portfolio construction

• Backtesting: Across decades, asset classes, and market regimes

• Risk management: Tailored to the strategy’s characteristics

• Behavioral readiness: Knowing in advance how painful flat or drawdown periods can feel

The 5Ps are not motivational fluff. They are a mindset and a process. When the pressure is on, it’s the preparation that keeps you from deviating.

Trend following is simple, but not easy. It doesn’t rely on predicting what markets should do. It reacts to what markets are doing. That is its edge.

But without preparation, here is what usually happens:

• Traders abandon the system too early

• They override signals after a few losses

• They size up too aggressively during a short streak of wins

• Or they miss the breakout that pays for the quarter

Trend following often has a low win rate but long-tailed upside. Success comes from consistency. And consistency only comes from doing the work upfront.

Here’s how we interpret the 5Ps in the context of trend following:

• Proper
  Build your strategy logic based on sound research and robust market observations. Not recent headlines or gut feeling.

• Preparation
  Backtest across regimes, run Monte Carlo simulations, and build your playbook for stress scenarios.

• Prevents
  Helps you avoid emotional overrides like performance chasing, recency bias, or holding onto losing positions in the hope they recover, also known as the disposition effect.

• Poor
  The likely result of trading without rules, without risk controls, or without conviction in your system.

• Performance
  Not just underperformance. We're talking about blown accounts, capital loss, and erosion of confidence.

This isn't just a catchy line. It's a working framework. In markets, structure beats prediction every time.

Lack of preparation doesn’t just mean a suboptimal Sharpe ratio. It shows up in the real world:

• A system overfit to a bull regime collapses in a sideways market

• Sloppy execution introduces slippage and noise

• A misunderstood edge leads to abandoning the system mid-drawdown

• No caps on exposure means one overleveraged trade undoes months of work

Well-prepared traders, on the other hand:

• Know what to expect from their system

• Stay calm when the system underperforms

• Recognize when drawdowns are within modeled tolerances

• Understand the difference between system failure and natural variance

Preparation is not a checkbox. It’s a continuous process. Just like pilots run pre-flight checks before every takeoff, systematic traders need recurring reviews:

• Did the system behave as expected during the last shock event?

• Are drawdowns within the projected range?

• Is execution still tight? Or is edge leaking through slippage and latency?

These aren’t postmortem questions. They’re routine maintenance for survival.

If you're serious about running a trend following system, your prep list should include:

• Strategy logic broken into modular blocks (entry, exit, sizing, filters)

• Backtests with walk-forward validation and out-of-sample segments

• Regime-aware testing and scenario modeling

• Monte Carlo simulations to understand distribution of outcomes

• Execution testing across instruments and environments

• A commitment framework for sticking with the system

• Quarterly reviews with performance attribution and diagnostics

This is the real work. It’s not flashy. But it’s what keeps trend followers in the game.

Trend following doesn’t reward cleverness. It rewards consistency. And consistency only happens when you’ve done the work.

The 5Ps aren’t just a military mantra. They are a mindset that aligns perfectly with how systematic traders succeed. If you prepare properly, you give your system the space to do what it was built to do.

Proper Preparation Prevents Poor Performance
The difference between a drawdown and a disaster.

Happy trading!