Breaking the Trend: How to Avoid Cherry-Picked Signals
Overview
Paper Summary
This study finds that a simple Exponential Moving Average (EMA) is highly effective for trend following in futures markets, outperforming more complex indicator combinations. The empirical Sharpe ratios closely match the theoretical predictions, suggesting that using a single EMA with an optimized time scale is sufficient for capturing trends and doesn't require the complexity of a large basket of indicators.
Explain Like I'm Five
Using a simple average called EMA is the best way to predict market trends for futures contracts. It's better than mixing lots of indicators.
Possible Conflicts of Interest
None identified
Identified Limitations
Rating Explanation
The paper's empirical findings strongly support the theoretical model proposed by Grebenkov and Serror, demonstrating that a simple EMA can be a powerful tool for trend following. While the paper could be stronger with additional comparisons to alternative complex approaches, the clarity and empirical validation are compelling.
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