CTA Trend Following
The core CTA recipe: in each futures market, go long if the trend is up and short if it is down, size by volatility, and let the stop or the signal flip you out.
Definition
Signals are breakouts, moving-average crosses, or time-series momentum, often blended across 1-month to 12-month speeds. Each market is treated as its own time series (not a rank). Risk is targeted so noisy markets do not dominate. The book is long convexity in the tails and short a little bit of money most quiet months.
Why it matters
It is 60–70% of CTA AUM and the reason people buy the category for crisis convexity. It is also why a CTA can look ‘broken’ for three choppy years and then print 2022.
Case
2008 and 2022: persistent trends in equities, rates, or commodities. 2011–13: whipsaw. Same rules, different path entropy.
How to read it
Speeds, universe, vol target, and long/short symmetry. A long-only SMA overlay on four equity ETFs is TAA, not a CTA trend complex.
Key papers
Landmark references with real publisher or arXiv links — not token-overlap noise.
- A Century of Evidence on Trend-Following InvestingHurst, Ooi, Pedersen · 2017 · Journal of Portfolio ManagementLong-sample trend across asset classes.