Copernicus replies to: Trend- what is it?


{quote} This is much theory. Have you actually tried trend-following trading?

A pretty long history with it mate and a devoted advocate.

Sometimes context matters….so this was creating a context to explain why so many different approaches to trend following create similar long term performance metrics. The info here for the inquisitive mind might help in understanding why the specific trend following technique is less important than the overall process of what is trying to be achieved. For example why do the majority of trend following strategies have a Pwin of <50%, a R:R of >1.5 and have positive skew and why do trend followers have relatively volatile equity curves compared to alternative trading methods such as mean reversion?

Is this volatility a sign of poor performance or a natural consequence of the method?

The more you play in this space….the more these type of questions will arise when you are deep in drawdown and the less you will be focused on supposedly important facts such as predicting entries with sniper accuracy.

For a trend follower, experience demonstrates that the repeated application of a well thought out simple process and enduring patience always outclasses the particular technique but you need to understand that ‘style drift’ between different methods is more attributed to either leverage (eg. position sizing) or simply luck of the draw with assets selected (as opposed to the method itself)… there are many applicable trend following methods which over the Law of Large numbers converge on a fairly standard and representative performance result. This feature of nearly all trend following methods can be attributed to the broad class of rules that are applicable to this method such as ‘cutting losses short and letting profits run’.

Quidquid latine dictum, altum videtur

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