Recognizing the inherent unpredictability of liquid financial markets is not just beneficial—it’s essential for those determined to carve a successful path through its capricious waves. Drawing on the revolutionary insights from Benoit Mandelbrot’s “The Misbehaviour of Markets,” and marrying these...
Two trend followers can look at the same market, reach opposite conclusions about how to trade it, and both be right. This is not a paradox. It is the consequence of a distinction that is frequently overlooked in discussions of...
When trend followers discuss diversification, the conversation typically centres on markets: the breadth of instruments traded, the range of asset classes represented, and the geographic spread of the portfolio. This is the right conversation to have. But it is...
Survival is not one strategy among many. In environments governed by irreversible outcomes, it is the precondition for every other strategy. The pursuit of performance without a survival architecture is not aggressive trading. It is a process that will...
Market averages are not what they appear to be. The standard framing presents average market returns as a benchmark against which active strategies should be measured: beat the average and you have demonstrated edge, fall short and you...
Most market participants approach financial markets as forecasting problems. If the direction of the next move can be estimated with sufficient accuracy, the rest follows. Diversified systematic trend followers take a structurally different position: the market’s direction cannot be...
The Central Limit Theorem is one of the most powerful results in probability theory. It is also one of the most routinely misapplied tools in financial risk management. Understanding why requires examining not the mathematics of the theorem itself,...
Financial markets are not complicated. They are complex. The distinction matters. A complicated system, an aircraft engine or a tax code, can in principle be fully understood by decomposing it into its parts. A complex adaptive system cannot. Its...
Path Dependence and the Non-Ergodic Nature of Markets Most of the analytical machinery used in mainstream finance rests on an assumption so foundational that it is rarely examined: the assumption of ergodicity. It is worth examining. The ergodic assumption is...
A model built in a controlled environment will always outperform a model built for the real one. The controlled environment is the point: strip out the variables that complicate prediction, and what remains is tractable. The problem is that stripping...
