Trend’s Not Dead (It’s Just Moved to a Trendier Neighbourhood)

Abstract

We explore the reduced performance of trend followers over the past decade but fail to find evidence that this is due to the commonly proffered reason of over-crowding of the strategy. Instead we find that the cause can be laid at the feet of the markets themselves – those markets commonly traded by trend followers have simply not trended as strongly in the past decade. By using a novel dataset of alternative commodity markets we show that the ‘trendiness’ of less mainstream markets, selected based on a set of simple criteria, is inherently higher and that trend following in these markets has continued to be significantly better.

Keywords: trend-following, momentum, crowding, alternative markets, CTA

JEL Classification: G02, G11, G12, G13, G14