In the world of quantitative finance, algorithmic trend following has long been a popular strategy among investors seeking to capitalise on market momentum. But what makes quantitative trend following so effective, and how can institutional investors harness its power? BNP Paribas QIS Lab has presented its new research paper ‘Following trends, one brick at a time‘, which provides a comprehensive guide to trend following, exploring its benefits, challenges, and best practices.
The paper begins by highlighting the benefits of algorithmic trend following, including its ability to capture positive convexity, a key driver of returns for commodity trading advisors (CTAs). By following trends, investors can potentially profit from market fluctuations, particularly over longer horizons. However, the journey to an efficient trend system is long and fraught with challenges, including the need to select the right signals, manage risk, and diversify across markets.
Algorithmic trend following for institutional investors

The paper delves into the science of spotting market trends, discussing various signals and methodologies for measuring trend strength. It also explores the importance of risk management, including the use of risk-scaling and diversification to mitigate potential losses, then examines the role of market bias and its impact on algorithmic trend following strategies.

One of the key takeaways is that algorithmic trend following is not a one-size-fits-all approach. Different strategies and techniques can be employed to suit various market conditions and investor objectives. The paper provides a detailed breakdown of a multi-asset trend system, highlighting the importance of selecting the right elementary signals, controlling risk, combining windows, diversifying across assets, and scaling volatility.
Julien Turc, Head of the QIS Lab at BNP Paribas
For institutional investors looking to harness the power of quantitative trend following, this research paper provides a wealth of information and insights. By understanding the benefits and challenges of trend following, investors can make informed decisions about how to incorporate this strategy into their portfolios.
The research paper is available to institutional clients via Brio. For more information about algorithmic trend following and how to access the research paper, reach out to Julien Turc or Raphael Dando.