EMAzing Trends: When One Moving Average Beats a Basket of Signals
TL;DR for operators Most trend-following signal libraries behave like kitchen drawers: MACD, crossovers, momentum mixes, Bollinger Bands, short lookbacks, long lookbacks, “robust” blends, and a few legacy knobs nobody wants to delete because they once looked clever in 2017. Sebastien Valeyre’s paper argues that much of this complexity may be unnecessary for medium-frequency cross-asset futures trend following.1 The paper tests whether the theoretical Sharpe-ratio curve derived by Grebenkov and Serror for EMA trend following is visible in real data. It is. Using daily returns for 70 futures instruments across commodities, FX, stock indices, and bonds from May 1990 to December 2023, the empirical Sharpe curve for an Agnostic Risk Parity portfolio fitted with normalized EMA signals lines up closely with the theoretical curve. ...