That's a key question. There is no conceptual difference between buying tail risk using options and trend following, but there is a practical one. The better TF funds seem to do ok during 'normal' years too, i.e. when there is no crash or commodities spike. Just buying tail risk will lose you money most of the time.
It's always interesting the TF versus mean reversion argument... but why not both? Mean reversion works most of the time, gets slammed some of the time, trend following works some of the time and occasionally produces outsized returns. Trend following normally performs well when mean reversion doesn't and vice versa... so why not both? My experience is running mean reversion on stocks and bonds whilst trend following on commodity and currency futures works nicely, a lot smoother than one or the other...
Modern trend following systems (e.g. Abraham) trade multiple subsystems, some of which are mean reverting and others break out based. This helps to reduce volatility.
I'm hearing the firm discussed earlier in the thread has a good July going on & has made up much of its 2011 loss.
Agree and I always wonder why some traders only use one system that's suitable for only one type of trading condition while knowing there are different types of trading conditions. Mark