Top Traders Unplugged – Systematic Investor Series SI382

Episode Title: The End of Globalization, the Rise of Trends ft. Richard Brennan
Date: January 10, 2026
Host: Niels Kaastrup-Larsen
Guest: Richard Brennan

Episode Overview

This episode opens 2026 with a deep dive into how the shift from globalization to regionalization is shaping markets—and, in particular, how this structural transformation creates fertile ground for systematic trend following. Richard Brennan discusses not just what’s happening in markets, but how traders should think about uncertainty, control, and robustness. The episode also features a rigorous examination of 2025's trading lessons, an analogy-packed exploration of optimizing for the "now," and a candid look at psychological traps and system design flaws traders often face. Listeners are invited to rethink their comfort with prediction and embrace trading with rules, participation, and adaptive response.

Key Discussion Points and Insights

1. The End of Globalization & Rise of Regionalization

[03:21 – 08:55]

• Richard’s Radar: The world is shifting away from global integration towards distinct regional blocs or "spheres of influence."
  • Countries like the US, China, and Russia now pivot to regional priorities.
  • Smaller and trade-dependent countries (e.g., Australia) feel more vulnerable, with fragmentation leading to inefficiencies, less cooperation, and more risk of conflict.
• Implications for Trend Following:
  • Fragmentation as Opportunity: “This fragmented world is likely to be less efficient, less cooperative on shared challenges... But I'll leave that for smarter people to deal with. I want to talk about the opportunities that this presents to trend following. And in that respect, I'm exceptionally optimistic.” — Richard [05:12]
  • Release Valves Create Trends: Market imbalances persist longer, as regional shocks aren’t quickly absorbed by coordinated central bank actions.
  • Persistence, Not Prediction: “These are not one day shocks, they are conditions. And conditions create trends.” — Richard [06:57]
  • Opportunities and Risks: The new regime generates more extended trends and volatility, but also more abrupt reversals and choppy markets.

2. 2025 In Review — Lessons and Sector Insights

[14:35 – 17:37]

• Year in Focus:

  • “Year of Concentration”: Trends were few but powerful, especially in metals (gold, silver, platinum accounted for ~21% of performance).
  • Gold: Exemplified "persistence," showing steady, technically clean trending.
  • Other Sectors: US equities provided modest gains; Japan’s Nikkei was strong; Indian equities lagged.
  • Laggards: Currencies, bonds, and energy markets (notably crude and natural gas) struggled, with false trends and whipsaws.
  • Portfolio Takeaway: The year reinforced the need for broad diversification and to always be “waiting like a trap,” ready to catch outliers wherever they arise.

• Trend System Outcomes:

  • Trend following produced a familiar return distribution: many small losses, a few big winners.
  • SG Trend Index touched its worst drawdown ever mid-year, but strong recovery followed (“six monthly consecutive positive returns”).
  • Reinforced the case for including true diversification (across all asset classes, especially commodities).

“If you have such an unusual, uncertain, unpredictable world, wouldn't it be nice to have a strategy in the portfolio that does not rely on prediction?” — Niels [18:31]

3. Timeframes & Performance

[25:45 – 26:10]

• Examination of short-, medium-, and long-term lookback periods:
  • Short-term strategies (20-day) were hit hardest in 2025.
  • 60-day lookbacks managed small positives; some longer-term models (130-260 day) also posted negatives, though less so.
  • Lesson: Timeframe sensitivity matters, advocating for ensemble models with multiple timescales for resiliency.

“That gives a reason to...consider ensemble models that bring in the different time frames together...you'll probably get a better average than trying to be selective in one of them.” — Richard [26:10]

4. Foundational Ideas: Trading with Uncertainty

[28:39 – 65:32]

A. Behavioral: Racing Analogy & Trading the Now

[28:39 – 40:59]

• Formula 1 Analogy:
  • “A Formula one race is not won by driving at the average speed of the track... The whole sport...is about responsive variation, not consistent averaging.” — Richard [29:28]
  • Most traders wrongly optimize for historical averages, which can lead to oversizing in volatile “corners” and missing out during trending “straights.”
  • True robustness comes from predefined responses (rules for braking—stop losses, position limits—and acceleration—letting winners run), not from chasing comfort through smoothing or average-based sizing.
  • Key test: “Can you articulate the rule that triggered the exit? If it's a rule you would have written before the trade, I believe that is risk management. But if you're inventing the justification after the discomfort arose, that's lifting.” — Richard [38:12]

B. Structural: The Nature of the Future — Hidden vs. Unfinished

[40:59 – 53:26]

• Two Visions of the Future:
  • Hidden/Fog Model: Assumes the future already exists and just needs to be revealed.
  • Unfinished Process: The future is constructed through adaptive interactions—nonlinear, reflexive, and dependent on collective actions.
  • Markets ≠ Physics: “Markets are not mechanical systems following fixed laws. They're ecosystems of decision-makers...” — Richard [43:05]
  • Explains why tight prediction and model overfitting increase fragility, as adaptive systems (like markets) deviate frequently from past patterns.

“The trend is not a forecast, it's a recognition of structure that currently exists. And the trend follower, they're not predicting continuation, they're participating in persistence while it does persist and they exit it when it ends.” — Richard [47:41]

• Forecasts as Hypotheses:
  • Value comes not from predicting, but from using hypotheses to interpret market confirmation (i.e., acting if market action aligns with thesis, not acting on thesis alone).

C. Psychological: Why Traders Prefer Comfort Over Convexity

[53:55 – 62:51]

• Seduction of Optimization:

  • “An optimized system feels finished...the messiness of uncertainty is replaced by the satisfaction of completion. But this completion is emotional, not structural.” — Richard [54:31]
  • Tight optimization provides emotional comfort but sows fragility, as systems become less robust to changing conditions.
  • Often, profits are cut short due to discomfort (“convexity is not lost through error, it is surrendered to restore comfort”).
  • Good Enough > Optimal: “Good enough with robustness across conditions beats optimal almost every time.” — Richard [61:17]

• Systematic Rule-Setting as True Control:

  • Instead of managing emotions in stressful moments, design systems so critical actions are preordained and not dependent on emotional regulation.

“If your system requires you to make calm, rational decisions under pressure, your system has a design flaw. Because humans don't make calm, rational decisions under pressure. That's not a personal failing. It's how we're built.” — Richard [63:05]

Notable Quotes & Memorable Moments

• “Markets don't move because someone predicts the future correctly. They move because something comes out of balance and stays that way long enough for prices to adjust.” — Richard [07:35]
• “Slow moving imbalances...have room to run. And that's exactly what trend following needs. Not calm markets, not predictable markets, but markets where pressure builds and persists.” — Richard [08:16]
• “Trend following proved that point...six monthly consecutive positive returns since then. So what looked like a really awful, difficult period has been replaced by an unusually positive period.” — Niels [20:59]
• “Many of the traders who optimize most aggressively are exceptionally intelligent people and mathematically sophisticated. I'm saying the answer is emotional.” — Richard [54:10]
• “Control your process completely, but release your grip on outcomes entirely. The result, therefore, gives you a kind of freedom... You're focused entirely on whether you executed it correctly according to your rules.” — Richard [64:58]

Timestamps for Important Segments

• 03:21 — Major theme: End of globalization, opportunities for trend following
• 14:35 — 2025 market review: winners, laggards, and portfolio implications
• 25:45 — Importance of timeframes; performance differences & ensemble models
• 28:39 — Foundational section: Three big ideas about uncertainty and systems
  • 29:28 — Formula 1 analogy, average vs. responsive trading
  • 37:11-39:30 — Distinguishing risk management vs. emotional exits
• 40:59 — Nature of the future: Hidden vs. unfinished
  • 43:05 — Markets as adaptive, emergent systems
  • 49:55 — Limits of prediction, value of persistence and participation
  • 51:57 — Forecasts as hypotheses, not trades
• 53:55 — Psychology of optimization and comfort
  • 54:31 — Fragility hidden in "finished" systems
  • 61:17 — Robustness over optimization
• 62:51 — Trading psychology: System design vs. emotional management
  • 64:58 — Stoic approach to market control

Flow and Language

Throughout the episode, the tone is candid, occasionally humorous, but always analytic and grounded in the realities of rule-based trading. Both Niels and Richard stress humility in the face of uncertainty and use vivid analogies to drive home why process and response trump prediction and emotional comfort.

Key Takeaways

• The fragmentation of the global economy is likely, paradoxically, to be a tailwind for trend followers, as persistent, region-specific trends emerge.
• 2025 saw concentrated returns in metals and mostly losses or flat returns elsewhere. Diversification and readiness to catch outliers is vital.
• All model timeframes have weaknesses; ensemble approaches provide greater resiliency.
• Backtests provide a false sense of certainty. True control comes from rules that respond to current, evolving market realities, not from attempts to predict the unpredictable.
• The most dangerous trading errors are rooted in psychology, especially the pursuit of emotional comfort through over-optimization.
• The ultimate goal is to control the process (entries, exits, sizing) and let go of the outcome—ironically delivering the very robustness most traders are seeking.

For more episodes and the latest Ultimate Guide to the Best Investment Books, head over to toptradersunplugged.com/ultimate.