dorsal/arxiv
View SchemaTrend followers lose more often than they gain
| Authors | Marc Potters, Jean-Philippe Bouchaud |
|---|---|
| Categories | |
| ArXiv ID | physics/0508104 |
| URL | https://arxiv.org/abs/physics/0508104 |
Abstract
We solve exactly a simple model of trend following strategy, and obtain the analytical shape of the profit per trade distribution. This distribution is non trivial and has an option like, asymmetric structure. The degree of asymmetry depends continuously on the parameters of the strategy and on the volatility of the traded asset. While the average gain per trade is always exactly zero, the fraction f of winning trades decreases from f=1/2 for small volatility to f=0 for high volatility, showing that this winning probability does not give any information on the reliability of the strategy but is indicative of the trading style.
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"date_modified": "2026-03-02T18:01:00.527000Z",
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"abstract": "We solve exactly a simple model of trend following strategy, and obtain the\nanalytical shape of the profit per trade distribution. This distribution is non\ntrivial and has an option like, asymmetric structure. The degree of asymmetry\ndepends continuously on the parameters of the strategy and on the volatility of\nthe traded asset. While the average gain per trade is always exactly zero, the\nfraction f of winning trades decreases from f=1/2 for small volatility to f=0\nfor high volatility, showing that this winning probability does not give any\ninformation on the reliability of the strategy but is indicative of the trading\nstyle.",
"arxiv_id": "physics/0508104",
"authors": [
"Marc Potters",
"Jean-Philippe Bouchaud"
],
"categories": [
"physics.data-an",
"cond-mat.other",
"physics.soc-ph",
"q-fin.PM"
],
"title": "Trend followers lose more often than they gain",
"url": "https://arxiv.org/abs/physics/0508104"
},
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