The Power of Trend Following and Why Most Investors Miss It

📈 Key Insight:

Markets trend—and those trends can be quantified and traded. But most investors underperform not because they chase, but because they hesitate, override rules, or apply strategies inconsistently.

🔄 Statistical Truths:

Market returns are negatively skewed and have fat tails. That’s not a glitch—it’s a feature. And it favors tactical trading systems over passive allocations.

🛠 How Trend Following Works:

The S&P DTI uses a 7-month exponential moving average to decide whether to go long or short in 24 markets. Simple rule, strong signal.

🚫 Design Flaws in Practice:

S&P’s DTI isn’t perfect—energy markets were excluded from shorts due to curve-fitting bias—but even with these flaws, the strategy worked.

📉 Risk Reality

Compared to the S&P 500, the DTI had ~1% lower returns but suffered only 16.6% max drawdown vs 50%+. That’s a compelling trade-off for institutions and advisors focused on client retention.

📚 The Takeaway

Chasing performance is only foolish when it’s reactive. Trend following *is* performance chasing—but with rules, risk controls, and rigor.

⚙️ How to Use It

Build strategies that adapt to markets. Follow, don’t forecast. Use trend-based strategies across non-correlated markets to achieve real diversification.