On April 2, 2025, one of the largest market shocks since 2020 hits financial markets. Out of left field, President Trump announces punitive tariffs left and right, and most financial assets begin bleeding. In the desperation, investors look for a safe haven. Ironically, trend following—long considered a source of crisis alpha—experiences one of its worst drawdowns in history.1 Whoomp, whoomp. The outflows begin.
What follows could not have been more beautifully scripted. Gold rises, the dollar gets crushed, and silver goes on a historic rally as trends begin to take shape. By the end of the year, the sector finishes firmly in the green. Then 2026 comes along. January still posts strong returns, even though it ends with one of the sharpest metal trend reversals ever.2 March brings one of the wildest moves in crude since it went negative in 2020, as oil nearly doubles from around $60 to $120 in the span of a week, only to crash back down to $90 overnight. This thing is finally moving while U.S. stocks are flat!
And so—like with most assets or strategies that post strong returns—investors may be eyeing this particular strategy and asking: Is it time to get in?
The answer, while not surprising, is definitely nuanced. In this post, I go over my conversation with Dr. Kathryn Kaminski, Chief Research Strategist and Portfolio Manager at AlphaSimplex, to explore whether investors should be allocating to trend following after this latest rally.
If you want to wat my conversation with Dr. Kaminski, make sure to check out the latest episode on our YouTube channel:
Let’s begin.
Trend is, surprisingly, mean reverting
Dr. Kaminski wrote a paper after the tariff turmoil investigating the behavior of trend following after drawdowns3. Her results demonstrate that trend programs tend to post strong returns after their worst drawdowns4. In her book Trend Following with Managed Futures5, Dr. Kaminski also finds negative autocorrelation in trend-following futures strategies. Periods of outperformance tend to be followed by periods of underperformance, and periods of underperformance tend to be followed by periods of outperformance.
From this, we can conclude that if investors are to tactically allocate to trend, it is best to do so during cycle bottoms, not during cycle highs.
It’s the shocks that serve as trend catalysts
You may have been dissuaded from investing in trend because “information just travels too fast.” It certainly does seem like trend had some of its best runs when information was scarce, computers were hard to come by, and speculators drew fancy lines on paper charts. Those days are long gone.
Personally, while I believe the premium has definitely compressed, trend following relies on a fundamental reality of human survival: adaptability. “Trend following is really about following the themes in the marketplace as they evolve using a data-driven approach,” Dr. Kaminski highlighted during our chat. Critically, evolution usually springs from a catalyst or shock in the ecosystem.
Unfortunately for trend, it is not a strategy that seeks to gain from shocks—so it’s a coin flip whether it will react positively or negatively to these events. Having said that, it’s important to keep in mind that, as Dr. Kaminski said, “it’s the change after that shock that slowly comes into the markets that creates new trends.” It was the April 2025 selloff that sparked the dollar trend and emboldened the metals trend. More recently, it was the Iran conflict that supported the energy trend.6 These shocks bridge markets from a state of stability to one of instability. Thankfully for us, trend tends to thrive during instability.
Trend is structurally different… And that’s GREAT!
“Trend following is one of the only strategies that’s very, very different. It does actually have low correlation over long time horizons with things like equities,” Dr. Kaminski said.
Trend likes instability, while equities like stability. Stocks experience frequent small gains and occasional big losses, while trend tends to experience frequent small losses and occasional big gains. These two assets are a match made in heaven. While trend won’t always save the day (especially during fast equity crashes7) some level of trend following in equity-heavy portfolios is likely to significantly improve portfolio outcomes.
Conclusion
So, is it time to buy? While bullish periods for trend tend to signal mean reversion in the future, it is nearly impossible to tell exactly when these inflection points will arrive. So yes, while from a tactical perspective trend does not look as appealing, from a strategic standpoint, it is my opinion that most investors would benefit from including trend in their portfolios. The diversification benefits are just that good. How one begins allocating is a matter of discretion—but the allocation question is, in my opinion, already resolved.
- To be fair, the peak had come from one of the best years in its history. ↩︎
- These adjectives may sound like hyperbole, but truly, these moves have truly been that extreme! ↩︎
- Kaminski, Kathryn M., and Shihong Wen. Market Cycles and Managed Futures Drawdowns: An Empirical Analysis of Managed Futures Drawdown and Recovery Periods. AlphaSimplex Group, June 2025. ↩︎
- Which also tend be much shallower than equity drawdowns. ↩︎
- Alex Greyserman and Kathryn Kaminski, Trend Following with Managed Futures: The Search for Crisis Alpha (Hoboken, NJ: John Wiley & Sons, 2014). ↩︎
- We still have to see how this one will play out! ↩︎
- Tail hedging is much better at that job. ↩︎
About the Author: Jose Ordonez
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Important Disclosures
For informational and educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. Certain information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Third party information may become outdated or otherwise superseded without notice. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency has approved, determined the accuracy, or confirmed the adequacy of this article.
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Facts Only
On April 2, 2025, President Trump announced punitive tariffs, causing a major market shock.
Trend-following strategies experienced one of their worst drawdowns in history during this period.
Gold prices rose, the U.S. dollar weakened, and silver rallied significantly by the end of 2025.
In January 2026, metals saw strong returns followed by one of the sharpest trend reversals on record.
In March 2026, crude oil nearly doubled from $60 to $120 in a week before crashing back to $90 overnight.
U.S. stocks remained flat during these commodity movements.
Dr. Kathryn Kaminski, Chief Research Strategist at AlphaSimplex, published research showing trend-following strategies tend to recover strongly after deep drawdowns.
Kaminski’s book *Trend Following with Managed Futures* identifies negative autocorrelation in trend-following futures strategies.
Trend-following strategies perform well during market instability but are unpredictable immediately after shocks.
The strategy has low correlation with equities, making it a potential diversifier for equity-heavy portfolios.
Kaminski notes that trend-following relies on adaptability to evolving market themes, often triggered by shocks like tariffs or geopolitical events.
The 2025 tariff shock and 2026 Iran conflict were cited as catalysts for trends in metals and energy markets.
Executive Summary
In April 2025, financial markets experienced a significant shock when President Trump announced punitive tariffs, leading to widespread asset declines. Investors sought safe havens, but trend-following strategies—typically relied upon for crisis alpha—suffered one of their worst drawdowns. However, commodities like gold and silver rallied strongly, with silver posting historic gains by year-end. In 2026, volatility persisted: metals saw sharp reversals in January, and crude oil nearly doubled in a week before crashing overnight. These movements occurred amid flat U.S. stock performance, reigniting interest in trend-following strategies.
Dr. Kathryn Kaminski, Chief Research Strategist at AlphaSimplex, highlights that trend-following strategies exhibit mean-reverting behavior, with strong returns often following deep drawdowns. Her research shows negative autocorrelation, meaning periods of outperformance tend to precede underperformance and vice versa. Trend strategies thrive on market instability, often sparked by shocks like tariffs or geopolitical conflicts, but their performance is unpredictable in the immediate aftermath of such events. While trend-following offers diversification benefits—particularly for equity-heavy portfolios—its tactical timing remains challenging. The strategy’s low correlation with equities makes it a valuable long-term allocation, though its effectiveness during rapid equity crashes is limited.
Full Take
The narrative presents trend-following as a counterintuitive but valuable strategy, particularly in volatile markets. The strongest version of this argument acknowledges its historical resilience after drawdowns and its diversification benefits, especially when equities underperform. However, the analysis also concedes that trend-following is not a panacea—it struggles during rapid equity crashes and its performance is highly dependent on the nature of market shocks.
Patterns detected: none. The piece avoids emotional exploitation or distortion, instead relying on empirical research and balanced framing. The root cause paradigm here is the tension between market efficiency and behavioral finance: while information travels faster than ever, human adaptability and shock-driven trends still create opportunities for systematic strategies. The implications for human agency are mixed—trend-following democratizes access to crisis alpha but requires discipline to endure frequent small losses for occasional large gains.
Key questions emerge: How might the increasing speed of information dissemination further compress trend-following’s edge? Could geopolitical shocks become so frequent that they normalize, reducing their catalytic effect? And if trend-following’s mean-reverting nature is well-documented, why do investors still chase performance at cycle highs?
If this were part of a coordinated influence campaign, the playbook might involve exaggerating trend-following’s reliability while downplaying its limitations. However, the actual content resists this by explicitly noting its unpredictability and tactical challenges, aligning more with educational transparency than manipulation.
Sentinel — Human
The article appears to be written by a human. It presents a balanced analysis of trend following in financial markets with references to academic research, interviews, and historical events.