Playing offense and defense with trend-following

There has been a significant focus on trend following as a defensive alternative investment. You hold the trend-follower because the strategy is expected to do well during periods of poor equity returns. The name "crisis alpha" has stuck to trending following as the shorthand descriptor. However, trend followers can make money when there are strong uptrends in markets. What trend-followers need are market divergences. If the equity market diverges to the upside, a trend-follower should make money, but the returns will, of course, be less than the returns of a pure equity investment. So, the results are very simple. Possible positive returns in all divergent environments, but excess returns versus stocks when equity markets fall and underperforms when the stock market rises.

Aspect Capital has come up with a new turn of the phrase called "unpredictability alpha" to explain the fact that trend-following can do well in both up and down market divergences. It is trying to cover more than crisis alpha, but I don't think it hits the mark. Let's stick with the basics from years ago, trend-following is divergent trading as opposed to convergent trading. Divergent trading makes money when prices move away from equilibrium level and are likely to trend. 

The important point is that trend-following can be both a defensive and offensive strategy. It can protect when key markets fall and it can make money when prices move to the upside. There is value with holding a strategy that can do both.