Sure trends have existed for 100 years (https://www.efficient.com/pdfs/A_Century_of_Evidence_on_Trend-Following_Investing.pdf), 200 years (https://www.cfm.fr/pdf/financial_market/Two_centuries_of_trend_following.pdf) I think idiotic is a bit strong. Every now and then trend following appears to vanish. It would take at least a decade to make it likely that was (a) due to the dissapearance of trends, rather than (b) just a bad draw out of the underlying distribution of returns in what is never going to be a very high sharpe ratio strategy. I don't think its idiotic to ask the question, could this be scenario (a)? Will they continue to exist? I think so, since I personally think they're caused by cognitive biases in human behaviour that I don't see being fixed or the weight of systematic money ever being enough to wipe these out. "Market must trend in order for trader to make money" Surely this only applies to, er, trend following traders? What about counter trend, mean reversion, volatility sellers, carry premium collectors, market makers .... they would all make more money without trends, correct?
Only a fool will believe that because trends exist he can make money from them. That's the big difference to understand. Seeing a trend and trading a trend are like day and night or even worse. The whole debate about the existence of trends is a distracting issue away from the real difficulties of trend trading.
The first paper is a marketing advertisement and the second fails to account for the upward drift in stock prices-- Both are evidence of fatally flawed research. surf PS-- I guess you could say the "academic" looking second paper is also a marketing piece since CFM is a large Paris based CTA-- RIDICULOUS!!
as Napoleon once said "Ability is nothing without an opportunity" but to be able to use the opportunity you first need to classify it as such, therefore, the definition of the trend is extremly important those who have it - have a method, those who don't - don't arguing about the trend without defining it - useless...but giving here the definition of the method (for those who have it) also not smart hence you will effectively give the public your method
I don't think so since the following is hardly a secret! My definition of a trend (on a barchart): uptrend = high highs and higher lows downtrend = lower highs and lower lows
I don't think we can dispute that trends existed, and still exist. We can look at a dozen charts that will show strong trends over time. What the papers purport to do, and is a harder question to answer, is to whether the trends can be captured (and I think we need to capture them using a repeatable systematic method, or we can't test it properly). Failing to account for upward drift makes for an interesting philosophical point. I think thats only an issue if you don't think the upward drift is repeatable. Otherwise its a trend, albeit a very slow one. If you removed this and TF rules no longer worked, then you've not disproved the existence of trends that can be captured, just the existence of capturable trends which are quicker than the long run drift. I've done plenty of research on this myself (which I can't point you to, since the place I used to work didn't let us publish the good stuff). Lets take bonds, where I'm more familiar. Futures data goes back only so far, in a period where we've had a long secular fall in yields. Unlike the long run upward drift in equities there are excellent arguments to say we won't see this repeated, and I think its fair to exclude this. Removing that long run drift from the total return series is a trivial matter (something like a symmetric moving average will do the trick, or kalman smooth if you're showing off). It takes about 10% of the total performance of trend following rules out. So perhaps 90% is due to stuff happening at a faster time scale. There is stacks of other academic research on this of course, the vast majority of it done by people with no connection to quant trading funds, but I don't think we need to continue playing a game where I put up references and you criticize them. I would argue that we have true out of sample results; perhaps 50 years of succesful trading by systematic trend following funds.
Good points-- but i am only talking about the stock market when i say trends dont exist beyond an upward drift. All studies i have seen indicate that the stock market is mean reverting. Not to mention that large CTAs run multiple funds in all directions--- they quietly close the losers and promote the winners. I bet if you ask the clients of these funds if they are happy with the 50 years of success you claim-- u will get a whole different answer surf
Are you talking about individual stocks, or 'the market as a whole' (eg trend following the S&P 500 index)?