Breaking the Trend: How to Avoid Cherry-Picked Signals

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Conflicts of Interest

Identified Weaknesses

Rating Explanation

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Paper Summary

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One Simple Trick For Trend Following: EMA

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.

Possible Conflicts of Interest

None identified

Identified Weaknesses

Testing on only one simple method based on ARP + one EMA

The empirical Sharpe ratio is close to the theoretical Sharpe ratio. It is also better than applying a complex basket of different indicators such as EMA with other parameters or MACD.

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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