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Trend Following: Break Down the Complexity

Trend followers know the world is non-normal. There is chaos to the markets and life. Larry S. Liebovitch and Daniela Scheurle offer insight in the following excerpts:

For such a long time we thought that most data must have a normal distribution and therefore that the mean is meaningful. With the perfect vision of hindsight, this is a bit odd. Much of the world around us is not normal. It consists of fractals, for example, mountain ranges, river basins, and broccoli. These fractals have an ever larger number of ever smaller pieces. Yet, we insisted on modeling many things as if all of their pieces had only one size. Similarly, it is also a bit odd that we thought for so long that if we knew the rules of the world that we could completely predict its future. The endless variety of chess games, the patterns of snowflakes, and the complexity of human relationships might have suggested something different to us.

We will never cease with the “no prediction is possible” message. Liebovitch and Scheurle back basic trend following beliefs.

However, the trend following critics always make it more complex than need be:

The point is not that we have been so wrong for so long. The point is that it is so difficult to see the simplest things as they really are. We become so used to our assumptions that we can no longer see them or evidence against them. Instead of challenging our assumptions we spend our time in studying the details, the colors of the threads that we tear from the tapestry of the world.

A good example of too complex? Read:

Why go the direction of balance sheet reading when you can just trade the price? How does reading a balance sheet help you?

Science is hard because it is hardest to see what is most obvious.

Per Bak

Trend following is sophisticated and simple. This notion is reinforced by the late Per Bak ( in areas that have nothing to do with trading:

Is the answer to the universe’s greatest mystery hidden in a pile of sand? Theoretical physicist Per Bak thinks it may be. He believes science’s greatest challenge is to figure out how the universe’s complex phenomena emerge from laws of physics, laws so simple that they all can be written down on a single piece of paper. So he studies emergent, complex phenomena – like traffic jams and mass extinctions and avalanches – by looking at their parts.

Keith Campbell, one of the oldest trend followers, has long stated his trend following trading rules could be written down on a single sheet of paper. The key ultimately is finding the discipline and psychology to stick with it.

Per Bak concludes with wisdom all trend followers will immediately grasp (

What interests Professor Bak is life. Economics. History. How can you start with quarks and gluons and get humans and astrophysics and earthquakes? So he studies grains of sand. And the cars that make up traffic. He looks at the parts to understand the whole. (It’s known as bottom-up science, as compared to traditional top-down physics.) Say goodbye to a nice, steady, equilibrium perspective, says Professor Bak. Equilibrium equals death. Things do not rock along smoothly, change in small increments. Change is catastrophic. We must learn to adapt because we cannot predict.

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