Out of Equilibrium
The Santa Fe Revolution That's Reshaping Finance
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SERIES OVERVIEW
Why do trends exist?
For a trend follower, this is the fundamental question.
For decades, much of mainstream financial theory struggled to explain why persistent trends should exist at all. In its strongest forms, efficient-market thinking leaves little room for predictable serial dependence in returns.
Yet the trends are there.
They appear in equities, bonds, commodities, currencies and even volatility. They emerge across different timeframes, geographies and market regimes. Wars, pandemics, crashes and monetary upheavals have not eliminated them. Nearly half a century of modern empirical evidence has documented their persistence.
If trends are this widespread, equilibrium models may not be entirely wrong. But they are incomplete.
In 1987, ten economists and ten scientists gathered at the newly established Santa Fe Institute to ask what economics might look like if some of its conventional assumptions were reconsidered. The research program that followed challenged equilibrium as the default lens through which an economy should be understood.
What emerged became known as complexity economics. I believe it provides one of the strongest theoretical foundations for systematically diversified trend following.
“There is no equilibrium. There is only adaptation.”
Out of Equilibrium is an eight-part research series exploring the early stages of that intellectual revolution.
This overview provides the roadmap. It explains what to expect from each article and how the argument develops from one to the next.
THE EIGHT-PART JOURNEY
Each article stands on its own. Read together, however, they build a single argument: markets are dynamic, evolving systems, and responding to their movements is more robust than trying to predict what they will do next.
Article 1 Do Anything You Like, Providing It Is Not Conventional.
Article 2 The Bar Problem That Explains Every Market.
Article 3 When Small Things Become Unstoppable.
Article 4 All Systems Will Be Gamed.
Article 5 The Physicist Who Beat the House Twice.
Article 6 The Artificial Stock Market.
WHAT THIS SERIES CLAIMS
One point about scope matters.
This series is a synthesis. It connects complexity economics at the Santa Fe Institute with systematic trend following, then carries that connection through to the empirical work presented in The Fractals of Finance.
It does not introduce a new dataset. It develops an argument about posture: respond to an uncertain world rather than pretend you can predict it.
Trend following is naturally aligned with the structural dynamics of a system that never settles into equilibrium. It does not need to predict which markets will move, when they will move or why.
It responds.
FIVE THINGS TO TAKE AWAY
- Markets need not be in equilibrium. Markets are ecologies of adaptive agents whose actions continually change the environment in which they operate.
- Prediction can become self-defeating at scale. Crowded positions alter the markets they are attempting to predict, sometimes helping to create powerful directional moves.
- Trends are positive feedback made visible. They can emerge from the structure of the system rather than existing merely as anomalies waiting to be arbitraged away.
- Fat tails are a natural output of the system. Cut losses short. Let winners run.
- Respond, do not predict. Diversify across many markets and harvest whatever the ecology produces.
ABOUT DISPATCHES FROM THE OUTPOST Dispatches from the Outpost is the video series from ATS Trading Solutions in which I revisit our published research, explore particular ideas in greater depth and challenge the conventional wisdom that holds many traders back. Each Dispatch includes a full written summary, the central takeaways and links to the original research. → Subscribe on YouTube │ → Browse all Dispatches │ → atstradingsolutions.com |
Richard Brennan writes on systematic trading, complex adaptive markets, and the philosophical foundations of trend following at atstradingsolutions.com. His books include The Fractals of Finance, Complex Adaptive Markets, Carved by Impossibility and The Aussie Turtles Trend Following Guide.
Want to explore why structure exists at all?
Carved by Impossibility: What Remains When Everything Else Is Eliminated
The book explores the architecture of constraint, emergence, and reality itself, and what it means for how we understand markets, life, and the universe.
Available now on Amazon in paperback, hardcover, and Kindle.
Want the theoretical foundation for why trend following works?
The Fractals of Finance: Determinism, Adaptation and the Geometry of Markets
The book explores the full architecture of feedback, fat tails, and fractal structure in financial markets, and what it means for how we trade, invest, and understand risk.
Available now on Amazon in paperback, hardcover, and Kindle.
Want a practical field manual for trading trends and capturing outliers?
The Aussie Turtles Trend Following Guide: A Field Manual for Hunting Outliers adapts the timeless principles of the original Turtle traders into a systematic, rules-based approach for modern markets. Co-authored with Adam Havryliv.
Available now on Amazon in paperback, hardcover, and Kindle.