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arXiv · 2504.10914

Breaking the Trend: How to Avoid Cherry-Picked Signals

Sebastien Valeyre
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Abstract

Our empirical results show an impressive fit with the theoretical Sharpe formula of a trend-following strategy depending on the parameter of the signal, which was derived by by Grebenkov and Serror (2014). That empirical fit convinces us that a mean-reversion process with only one time scale is enough to model, in a precise way, the reality of the trend-following mechanism at the average scale of CTAs and as a consequence, using only one simple EMA, appears optimal to capture the trend. As a consequence, using a complex basket of different complex indicators as signal, does not seem to be so rational or optimal and exposes to the risk of cherry-picking.

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Sebastien Valeyre. 2025-04-15. Breaking the Trend: How to Avoid Cherry-Picked Signals. https://arxiv.org/abs/2504.10914

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