The Classic Trend Followers go on safari searching for maximum diversification in their quest to hunt for Outliers. We hope you enjoy this episode as much as we did presenting it.
Episode 18 of The Algorithmic Advantage is a Trading Think Tank roundtable, one of the show’s recurring formats where the hosts gather a group of classic trend followers for a direct, practically focused discussion on a single question. This episode takes on one of the most consequential decisions any systematic trader faces: how many markets and systems do you actually need to capture the full benefit of diversification?
The answer matters because it sits at the heart of what trend following actually is. The strategy does not generate returns by being right about individual markets. It generates returns by being wrong cheaply across many markets and right expensively on a small number of outliers. The mathematics of this depend entirely on the breadth of the opportunity set. Contracts that are genuinely uncorrelated with each other multiply the probability that at least one of them will generate a significant move in any given period. Contracts that are correlated, regardless of how different they appear on the surface, do not add the same value.
The roundtable brings together experienced practitioners who trade across different market universes and with different system designs, allowing the group to examine the diversification question from multiple angles: when does adding markets stop helping, when does adding systems become noise, and how do you maintain the ensemble discipline required to let the outliers run when most of your book is treading water. This is the mathematical and philosophical foundation of the Outlier Hunter approach.
Related reading: Read: The Diversity Dividend: How Variety Creates Resilience