Positioning for relatively low probability outcomes ( in terms of both magnitude & runs of consecutive similarly signed trading periods ) has been the optimal thing to do for the last several months in CL, Currencies, Bonds and DAX. ( ex- post profitability from momentum strategies likely in the order of that list also ). Contemporary returns from the HF world up until last Friday support all of this.

This post does not seek to challenge or discuss the wisdom of these moves or the disturbing future ramifications.

In dealing with the market's regular shifts between rewarding either;

* positioning for low probability scenarios


* positioning for high probability outcomes

It is difficult to assess how the market has done because the practitioners keep changing, survivors bias comes into play (in addition to all the other factors that are common in these types of studies)

One approach that has been fruitful has been to run theoretical portfolios of naïve trend following strategies and portfolios of naïve reversionary approaches. The aim is not to trade them but rather to have an objective measure of what strategies the market is rewarding with outsized gains and looking, quantitatively, at conditions that indicate a change in regime.

To those of this list who care - I believe a substantial change of fortune is at hand based on the above.

For the avoidance of doubt - Further out than the next 36 hours I have very little idea as to the direction of any of the major markets so I most clearly am NOT calling the end of any major 'Trend' ( whatever that is - Sorry, couldn't help myself). What I am saying is that the mistress is likely to be much more discriminating in sharing her pleasures than she has been in the last several months per unit of risk taken.


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