Show me the smile. During these times of stress, many investors in trend-following strategies have been looking or banking on the smile associated with this strategy. It has not happened because there is usually a frown in trend-following based on time horizons. A smile using quarterly data will not appear at shorter time horizons. In fact, during short time horizons, there will be underperformance at the extreme. One, extremes may be associated with changes in trends. Two, extremes may cause trend-followers to be stopped out of their positions. Hence, the trend program, which often uses leverage, may have more considerable losses.
Changing behavior across time horizons is a reality that must be accepted by trend-following investors.
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