I believe that trading in markets should be simple in its philosophy, simple in its execution, but extremely difficult for the majority of market participants to stick with in the long term.
This is a quote from AQR Capital Management’s white paper titled, “A Century of Evidence on Trend-Following Investing”:
“Trends appear to be a pervasive characteristic of speculative financial markets over the long term. Trend-following strategies perform well only if prices trend more often than not. A large body of research has shown that price trends exist in part due to long-standing behavioral biases exhibited by investors, such as anchoring and herding, as well as the trading activity of non-profit seeking participants, such as central banks and corporate hedging programs. For instance, when central banks intervene to reduce currency and interest-rate volatility, they slow down the rate at which information is incorporated into prices, thus creating trends. The fact that trend-following strategies have performed well historically indicates that these behavioral biases and non-profit seeking market participants have likely existed for a long time.”
