SI391: Why Trend Following Works... the Evidence ft. Richard Brennan

36 snips

Mar 14, 2026

Richard Brennan, author and researcher on market microstructure and trend following, explains why trends arise from how markets work. He discusses oil shocks, long-range market memory, fat tails, volatility clustering, feedback loops, and a regime that favors trend-following rules over predictions. Short, sharp conversation about structural market behavior and its implications.

Ask episode

AI Snips

Chapters

Books

Transcript

Episode notes

ANECDOTE

Oil Spike Example Of A Primed Market

Richard described crude oil drifting from $87 to $66 over 18 months then spiking to $119 and reversing to $84.
He argued the spike resulted from a primed market (short interest, low vol) that overreacted when a geopolitical ignition arrived.

INSIGHT

Returns Follow Power Law Tails

Return distributions in liquid markets are fat tailed and follow a power law, not a normal bell curve.
Five-sigma daily moves occurred thousands of times more often than a Gaussian predicts, with a tail exponent near 3.33 across assets.

INSIGHT

Volatility Clusters Persistently

Volatility clusters: large moves tend to follow large moves and quiet periods follow quiet.
The average autocorrelation of daily move sizes across 68 markets was 0.353, indicating persistent volatility memory.

Get the Snipd Podcast app to discover more snips from this episode

Get the app

What if trends in financial markets are not anomalies, but the natural consequence of how markets function? In this episode, Niels and Richard explore the structural foundations of trend following. Drawing on research spanning 68 futures markets across four decades, Richard explains why markets exhibit persistent trends, fat-tailed returns, and volatility clustering. The discussion moves from oil market shocks to deeper questions about feedback loops, participant behavior, and regime shifts in financial markets. The conclusion is striking: trend following does not rely on fragile patterns. It aligns with fundamental structural properties embedded in how markets actually evolve.

-----

50 YEARS OF TREND FOLLOWING BOOK AND BEHIND-THE-SCENES VIDEO FOR ACCREDITED INVESTORS - CLICK HERE

-----

Follow Niels on Twitter, LinkedIn, YouTube or via the TTU website.

IT’s TRUE ? – most CIO’s read 50+ books each year – get your FREE copy of the Ultimate Guide to the Best Investment Books ever written here.

And you can get a free copy of my latest book “Ten Reasons to Add Trend Following to Your Portfolio” here.

Learn more about the Trend Barometer here.

Send your questions to info@toptradersunplugged.com

And please share this episode with a like-minded friend and leave an honest Rating & Review on iTunes or Spotify so more people can discover the podcast.

Follow Rich on Twitter.

Episode TimeStamps:

00:00 - Introduction to the Systematic Investor Series

02:08 - Oil market shock and the structural setup behind the spike

06:10 - Why calm markets can hide explosive potential

11:47 - How oil shocks ripple through inflation and the global economy

15:29 - Why trend followers focus on process, not predictions

22:15 - A changing regime that may favor trend following

24:43 - The research behind The Fractals of Finance

25:25 - Market memory and the meaning of the Hurst exponent

31:22 - Why trends are structural rather than random patterns

36:25 - Fat tails and why extreme market moves are far more common than expected

41:12 - Divergent vs convergent market participants

45:29 - The hidden risks in traditional volatility targeting

49:33 - Phase transitions and regime shifts in markets

55:33 - Why trend following aligns with market structure

59:02 - Oil shocks, inflation risks, and the next potential market regime

----

PLUS: Whenever you're ready... here are 3 ways I can help you in your investment Journey:

1. eBooks that cover key topics that you need to know about

In my eBooks, I put together some key discoveries and things I have learnt during the more than 3 decades I have worked in the Trend Following industry, which I hope you will find useful. Click Here

2. Daily Trend Barometer and Market Score

One of the things I’m really proud of, is the fact that I have managed to published the Trend Barometer and Market Score each day for more than a decade...as these tools are really good at describing the environment for trend following managers as well as giving insights into the general positioning of a trend following strategy! Click Here

3. Other Resources that can help you

And if you are hungry for more useful resources from the trend following world...check out some precious resources that I have found over the years to be really valuable. Click Here

Disclaimer