Figaro

Trend-following strategies work. The empirical evidence is clear. But they work for reasons investors find uncomfortable to admit, and that discomfort masks a deeper problem: the music that makes the price dance isn't what you think it is. When the stories people tell about a company change, the trend often breaks months before the price does. Investors watching charts miss the warning entirely.

• The stability of a narrative matters more than the direction of the price. A stock can rise while the stories connecting its future to its present are falling apart. Investors won't feel it in the sentiment. They'll only see it later in the chart.

• When a company loses control of its own story, the narrative fractures into competing pieces. Positive elements that used to exist together in one coherent narrative become isolated. Negative elements that used to live on the periphery start connecting to the core.

• This narrative breakdown happens before the price responds. You can watch it occur in real time through how journalists and analysts link ideas together. The shift looks small because sentiment might even stay optimistic. But the structure has already broken.

• Trend-followers relying on price alone miss the signal until it's too late. By the time charts show the reversal, the narrative has been unstable for months. The music changed before the dancers stumbled.

• If you want to understand whether a trend will hold, you need to ask a different question than whether prices are rising. You need to know whether the stories holding that trend together are still coherent. That's a harder skill, but it might be the one that separates winners from everyone else.