CUSUM (cumulative sum control)

CUSUM (Page, 1954) accumulates small deviations of a process from its expected behaviour and raises an alarm when the cumulative sum crosses a calibrated threshold. Born in industrial quality control, it detects small persistent shifts far earlier than waiting for a single catastrophic observation.

Applied to a strategy's returns, CUSUM asks continuously: is this equity path still consistent with the edge I validated, or has the process changed? The threshold sets the trade-off explicitly — a lower one catches breaks earlier but fires more false alarms — which turns “is my strategy broken?” from a feeling into a budgeted decision.