The Search For Crisis Alpha: Why Trend Following Struggles First and Finds Its Footing Later

---

• Trend following tends to lag early in crises but is built to adapt as new patterns emerge.
• Katy Kaminski describes it as a “second responder” strategy — slow to move early on, but powerful once new market regimes take shape.
• In markets where old correlations break down, resilience comes from patience and process, not prediction.

The most dependable investment strategies aren’t always the fastest to reward you. Sometimes, the very thing that makes them dependable — discipline, patience, reactivity — is also what makes them slow to shine when the world turns upside down.

Trend following is one such strategy. It’s built to follow, not forecast, often to wait, not jump. And that makes it particularly vulnerable in the first wave of a crisis, when market signals break down, safe havens fail, and nearly everything behaves differently than it’s “supposed” to.

In early April, investors got a glimpse of that chaos when stocks sold off sharply. Bonds, traditionally the first port in a storm, failed to rally. The dollar weakened. Portfolios built on the assumption that diversification means mixing stocks and bonds took hits from both sides. There was nowhere to hide. That kind of synchronized breakdown isn’t just painful; it’s destabilizing. It challenges core assumptions about how assets relate to one another, how markets behave under stress, and where protection can be found.

In that environment, systematic strategies struggled. Tuned to the old regime, trend-following models found themselves on the wrong side of new movements. That’s not an error in the models. It’s the models working as intended, just not on the timeline most investors prefer.

That’s where trend following comes under scrutiny. When markets seize up, people naturally ask: where’s the hedge? Where’s the crisis alpha? But crisis alpha isn’t a magic shield, it’s a process. One that doesn’t defend you at the moment of panic but begins its work in the aftermath, once the dust starts to settle and new patterns form.

Trend Following As a Second Responder

Katy Kaminski, Chief Research Strategist at AlphaSimplex, has studied this behavior for years. She coined the term “crisis alpha” back in 2009. And one of her central insights is that trend is not a first responder in market turmoil. It’s a second responder that adapts, slowly at first, then powerfully, once it finds footing. She calls this dynamic “second responder” behavior, which is a helpful metaphor. First responders show up immediately. Second responders show up when it’s safe enough to do their work, when patterns start to form, and noise gives way to structure.

The data supports it. Kaminski’s research shows that trend strategies often falter in short, sharp selloffs. But in extended crises — ones that stretch for months, not days — those same strategies begin to find their footing. They realign with new directions, and they often outperform.

This makes trend both misunderstood and underappreciated. When sharp selloffs hit, trend systems can underperform not because they’re broken, but because they were calibrated to the world before the shock. By the time the regime has changed, these systems are still catching up. That’s the paradox: the same trait that makes trend reliable over time — its commitment to process over instinct — is what makes it look ineffective in the moment, especially when investors are desperate for immediate protection.

But the most dangerous decisions often come from trying to engineer instant safety, relying on correlations that no longer hold, and overreacting to short-term volatility. What also hurts: Piling into assets that used to be uncorrelated, and now move in lockstep.

The Hardest Strength: Patience Through Regime Shifts

That transition isn’t easy to sit through, especially when correlations behave erratically, safe havens misfire, and you realize that most risk models are built on assumptions that don’t hold in a crisis. Take the classic belief that stocks and bonds are negatively correlated. It held for decades and built countless portfolios, but in 2022, and again in early 2025, it broke. And when that relationship collapses, even the most diversified portfolios can turn fragile.

Kaminski warns that relying on those correlations without adjusting for regime shifts can be dangerous. “If you pile into both [stocks and bonds] and you have a risk model that has a long-term estimate for correlation, guess what? You may be taking a lot more risks than you say,” she said.

Kaminski’s warning is subtle but sharp: when assumptions about risk and diversification don’t reflect reality, portfolios become vulnerable, specifically when built on models that assume yesterday’s relationships will hold tomorrow.

That insight matters not just for trend managers, but for anyone who wants resilience when the market breaks. Because this is what resilience looks like: not instant protection, but the ability to adapt. Not outsmarting the shock, but surviving long enough to benefit from the new order it creates.

Trend following doesn’t promise to shield you from the initial storm, but it promises to adapt once the weather changes. And right now, the weather looks uncertain: inflation pressures, policy pivots, currency shifts, and a growing sense that we’re possibly in the early stages of something bigger than a correction.

Staying Ready for What Comes Next

Maybe this isn’t the crisis, and maybe it’s just a tremor. But if it is the start of something more enduring, trend strategies may not lead the charge, but they’ll be ready when the direction becomes clear.

It’s tempting to search for a strategy that does everything, such as protecting immediately, participating fully, and reacting instantly. But those don’t exist. What exists is a mix of approaches, each with strengths and flaws.

Trend following’s strength isn’t speed. It’s discipline. It sticks to its process, even when that process lags behind the headlines, and that makes it one of the few strategies that doesn’t just endure regime shifts; it often thrives in them, just not right away. The hardest part is staying patient long enough for that to happen. Sometimes, the most dependable strategies are the ones that follow.

That delayed resilience is one of the most valuable traits an investor can have today. But it also asks something hard in return: patience. Not the kind of patience that hopes the market comes back. The kind that waits for the trend to catch up.

For trend followers, the job is the same: keep showing up, keep watching, and stay ready. As Kaminski put it: “We’re going to sift through sort of the wreckage of this and figure out what trends are going to work. That’s where the rest of this year could be quite interesting.”

---

This is based on an episode of Top Traders Unplugged, a bi-weekly podcast with the most interesting and experienced investors, economists, traders and thought leaders in the world. Sign up for our Newsletter or subscribe on your preferred podcast platform so that you don't miss out on future episodes.