SI149: Model Anxiety & Algorithm Aversion ft. Mark Rzepczynski

Mark Rzepczynski joins us this week to discuss ‘algorithm aversion’ and the science of how ‘model anxiety’ shows investors to be naturally wary of rules-based systems. We also discuss how to evaluate momentum data, how a busy week for market news can still be a quiet week for Trend Followers, the benefits of moving away from ‘peak complexity’ as soon as possible, why having too many filters can expose a trader to large opportunity costs, the optimal percentage amount of risk per trade, as well as portfolio construction versus signal generation and which is more important.

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

In this episode, we discuss:

• How behavioural finance leaves investors under-allocated to Trend Following strategies
• How to perceive momentum data
• Why the steady flow of market news often has little value for Trend Followers
• Embracing simplicity
• The need to avoid too many filters in your system
• How much should be risked per trade

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Episode TimeStamps:

00:00 – Intro

01:49 – A huge thank you to listeners of the show for leaving your 5-star reviews on iTunes

03:02 – Macro recap from Niels

04:48 – Weekly review of performance

11:59 – Q1; James: What are your views on momentum indicators diverging against price action?

24:56 – Q2; Frank: What is your view on the relationship between the stop and the look-back period?

28:52 – Q3; John: Is the 2% rule still a popular and good risk-per-trade today?

35:56 – Q4; Mark: Would you ever not take a trade because it seems so absurd logically?

40:11 – Q5; Frederick: Do you think people are underinvested in CTAs because they want to feel in more ‘in control’ than a systematic approach would allow them to?

45:34 – The calculus of business cycles

48:51 – Narrative ambiguity versus model clarity

50:53 – How to handle depreciating cash

54:04 – The power of weather shocks

58:01 – Do we need inflation futures?

59:58 – Curve play in bonds

01:02:11 – Hayek co-ordination problem and recovery

01:04:57 – Benchmark performance update

01:05:57 – Next week we have Richard Brennan joining us on the show, so send in your questions

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