Do you have any rational explanation for why trend-following systems work? People tend to focus on the few broad outcomes that appear most probable and ignore the low-probability scenarios. As various possible outcomes become less and more likely, certain neglected ones of small probability pop into view—a threshold phenomenon. The market has to discount these “new” possibilities somewhat discontinuously. Evidently, the success of trend-following means that moves of a characteristic size are more than randomly likely to be the beginnings of such discontinuous adjustments. Of course, the
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