The Brutal Truth About Trend Following: Part 2
Why Simple Beats Smart...
Markets don’t care about your opinions. They don’t care about your intelligence. They don’t care about your fancy indicators or your PhD-backed trading model. Markets move, and trend followers ride those moves. That’s it.
It’s about surviving long enough to be right big. No forecasting. No predictions. No ego. Just rules, discipline, and the ability to stomach being wrong most of the time—because when you’re right, you’re really right.
In this article, we cut through the noise. Do trend-following systems actually work? Which markets favor them? Are they overly complicated? We break down six trend-following strategies, analyze their performance, and lay out the cold, hard truth: trend following is not for the weak.
What Is Trend Following?
It’s the simplest and hardest thing in trading: cut your losses, let your winners run. Capture the few massive moves that define the market while surviving the chop that grinds most traders into dust.
Here’s What It Isn’t:
❌ Predicting tops and bottoms
❌ Calling reversals
❌ Trying to outthink the market
Trend followers don’t forecast. They react. Price moves, they follow. No hesitation. No second-guessing. If you want certainty, buy a Treasury bond.
The Uncomfortable Math of Trend Following
Think you’re mentally tough? Try being wrong 60% of the time and still making money.
Trend following works because it exploits one of the market’s only true inefficiencies: sustained momentum. When a market trends, it tends to keep trending. That’s why some of the simplest trading systems still work decades later.
Let’s Look at the Numbers (25 year diversified backtest):
The good news? The returns can be astronomical.
The bad news? You have to be willing to endure the drawdowns.
Here’s a reality check: the best-performing strategy in this list had a win rate of just 42%. That means you’ll be wrong more than you’re right. If you can’t handle that, trend following isn’t for you.
But really, there is no trader that is right over 50% of the time in the long run.
The Strategies: Simple, Not Easy
1️⃣ ATR Channel Breakout – Uses volatility-based channels to identify breakout points. Simple, brutal, effective.
2️⃣ Bollinger Band Breakout – If price closes above a band, you’re long. If it closes below, you’re short. Let the market decide.
3️⃣ Donchian Trend – Buy 150-day highs / Sell 60-day lows. Buy breakouts, ignore noise.
4️⃣ Donchian Trend w/ Time Exit – No stops. You’re in for 80 days. No second-guessing.
5️⃣ Dual Moving Average – 75-day vs. 325-day MA. Crossover = action.
These systems don’t predict. They follow. And they don’t work because they’re complicated—they work because they aren’t.
The Harsh Truth: Can You Handle It?
Paul Tudor Jones calls the 200-day moving average “playing defense.” It keeps you in the game. That’s the key: survival.
Trend following isn’t about being the smartest person in the room. It’s about having the discipline to take small losses over and over until the market hands you a home run. It’s about patience, resilience, and an iron stomach for drawdowns.
Most traders want to be right. Trend followers want to make money. There’s a difference.
If you can accept being wrong most of the time, ignore your instincts, and trust the math—welcome to the game.
If not, you’ll end up like most traders: broke and blaming the market.
Incorporating My Regime Model for a Higher Win Rate
Raw trend following is powerful, but it’s not perfect. The win rate is low, the drawdowns can be brutal, and the market doesn’t always reward blind persistence. That’s where my regime model comes in.
Instead of treating every market the same, I identify which environments favor trend-following strategies and which don’t. Not all trends are created equal—some are driven by liquidity cycles, macro shifts, or volatility regimes that increase the probability of sustained moves.
By layering macro fundamentals, market structure, intermarket relationships, and volatility signals onto traditional trend models, I can filter out the worst setups and improve the overall win rate.
The Goal?
Ride trends when conditions are favorable, sidestep the worst chop, and reduce unnecessary losses.
I’ll break this down further in Part 3, where I’ll walk through exactly how I use my regime model to refine trend signals, adapt to changing market conditions, and improve execution. Stay tuned.
Paul Mulvaney Capital’s long-term, lumpy returns offer a real-world look at how a fund truly performs—choppy, but moving in the right direction. If you want big returns, you need volatility.
🔗 Trading & Backtesting Platforms
RealTest – Powerful backtesting platform for systematic traders.
TrendSpider – Automated technical analysis and backtesting.
TradingView – Charting, scripting, and community-driven insights for traders.
📚 Educational Resources on Trend Following
The Complete TurtleTrader – Michael Covel – The story behind Richard Dennis and the Turtle Traders.
Trend Following – Michael Covel – The bible of trend following strategies.
Alpha Architect’s Momentum Investing Research – Deep dive into systematic investing and momentum strategies.
📈 Systematic Trading Blogs & Data
Quantocracy – Aggregates the best quant and systematic trading blogs.
Breaking Down Trend Following Performance – Alpha Architect
Against All Odds Research
Stay Connected:
YouTube: Against All Odds Research Channel (@againstalloddsresearch)
Twitter: Jason P (@jasonp138)
Substack: AAO Research
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Hi Jason, thank you for this amazing post. You mentioned that you will be talking about how your macro model works with trend following in your next article, can you please share the link to it?
good stuff