Most people are taught from childhood to avoid risk. Schools reinforce it. Families reinforce it. Society at large treats risk as something with only one side, the bad side. But the traders who built lasting fortunes through trend following arrived at a sharply different conclusion: that refusing to take risk is itself the most dangerous position of all. Understanding how they think about risk is foundational to understanding how the approach works.
The Conventional View of Risk Gets It Backwards
Charles Sanford, former Chairman of Bankers Trust, articulated this counterintuitive truth in a speech that has resonated with traders and thinkers for decades. His words cut directly to the core of why so many investors underperform and why trend followers, who openly embrace uncertainty, consistently outlast them.
“From an early age, we are all conditioned by our families, our schools, and virtually every other shaping force in our society to avoid risk. To take risks is inadvisable; to play it safe is the counsel we are accustomed both to receiving and to passing on. In the conventional wisdom, risk is asymmetrical: It has only one side, the bad side. In my experience, this conventional view of risk is shortsighted and often simply mistaken.”
Sanford’s core observation is that successful people understand risk as a productive force, not a pitfall. Taking calculated risks is fundamentally different from being rash. The trend following traders profiled throughout this site understood this distinction early and built entire careers on it.
“My first observation is that successful people understand that risk, properly conceived, is often highly productive rather than something to avoid. They appreciate that risk is an advantage to be used rather than a pitfall to be skirted. Such people understand that taking calculated risks is quite different from being rash.”
Playing It Safe Is the Real Danger
Sanford framed this as a paradox, one that trend followers live by: playing it safe is dangerous. The traders who made fortunes following trends did not do so by eliminating uncertainty. They did it by accepting uncertainty, sizing positions with discipline through sound rules, and letting their systems run. They did not try to predict where markets would go. They accepted that they could not know, and built systems accordingly.
“This view of risk is not only unorthodox, it is paradoxical. This one might be encapsulated as follows: Playing it safe is dangerous. Far more often than you would realize, the real risk in life turns out to be the refusal to take a risk. In other words, the truly most threatening dangers usually arise when you shrink from confronting what only appear to be the most threatening dangers.”
The investor who refuses to act because the outcome is uncertain is not protecting himself. He is simply choosing a different kind of risk, the risk of stagnation, of missed opportunity, of slow erosion. As Sanford put it, the refusal to take a risk is itself the risk.
Change Is the Only Constant
Sanford turned to the ancient Greek philosopher Heraclitus to anchor this argument in something deeper than investment theory. Heraclitus argued that all is flux, that nothing endures but change. If that is true, then resisting change is not prudent. It is simply futile.
“Obviously, if change is the fundamental rule of life, then resistance to change is folly, doomed to defeat. Just as obviously, if change is our constant, then uncertainty is an inescapable part of our lives. Uncertainty is unavoidable. Life is unpredictable. The very essence of life is the unexpected and the unintended, the unanticipated turns that we may metaphorically ascribe to Fate or Destiny or Providence.”
This is precisely why trend following works where prediction-based approaches fail. A trading system that tries to forecast the future is swimming against the current of change. A system that simply follows price, that rides whatever trend emerges without requiring a prediction about direction, aligns itself with the flow. The original Turtles were taught to do exactly this.
“Therefore, unless we wish to be tossed about like so much flotsam on the waves of inescapable change, we must place ourselves squarely in the midst of change. We must learn to ride the current of change rather than to swim against it. In other words, risk is commonly thought of as going against the current, taking the hard way against high odds. In a world of constant change, however, a world where Heraclitus said we can never step into the same river twice, taking risks is accepting the flow of change and aligning ourselves with it.”
Control Is an Illusion, but Process Is Real
One of the hardest things for new traders to accept is that they cannot control outcomes, only process. Sanford addressed this directly. The circumstances that can be absolutely controlled in life are so few and so trivial as to be nearly irrelevant. What matters is aligning your actions with reality rather than with a preferred fantasy about how markets should behave.
“To take a risk is indeed to plunge into circumstances we cannot absolutely control. But the fact is that the only circumstances in this life that we can absolutely control are so relatively few and so utterly trivial as hardly to be worth the effort. Besides, the absence of absolute control does not entail the absence of any control, or even significant control. There, again, is the paradox: In a world of constant change, risk is actually a form of safety, because it accepts that world for what it is. Conventional safety is where the danger really lies, because it denies and resists the world.”
Trend following systems accept this reality structurally. They cut losses, let winners run, and do not require the trader to be right about direction. The drawdown periods that inevitably come are not system failures. They are the cost of participation in a strategy that profits from large, extended moves. Accepting that cost, rather than fleeing from it, is itself the risk that generates long-term return.
Risk That Creates Value
Sanford’s final point is the most durable: the risks worth taking are those that create something of value. Not reckless leaps, but deliberate commitments to a direction you believe adds something worthwhile to the world.
“I believe firmly that the sort of risks that put one in a position to control one’s lot in a world of incessant change are the risks that attempt to add something of value to that world. To create value, to focus one’s efforts on increasing the fund of that which is worthwhile, involves a sort of risk. And yet, paradoxically, it provides you with the greatest control over a changing world and maximizes your chances to achieve a truly meaningful personal satisfaction.”
This maps directly onto what the great trend followers have always done. The traders who built lasting careers in this field did not do it by avoiding risk. They did it by taking risk deliberately, systematically, and with full acceptance of what uncertainty entails. The de Tocqueville observation that opens this page captures the other side of the coin: the person who cannot tolerate discomfort will never persist long enough to see the returns. As he wrote, death is often less dreaded than perseverance in continuous efforts to one end. Most traders quit. The ones who do not are the ones the Turtle story is about.
“It may readily be conceived that if men passionately bent upon physical gratifications desire greatly, they are also easily discouraged; as their ultimate object is to enjoy, the means to reach that object must be prompt and easy or the trouble of acquiring the gratification would be greater than the gratification itself. Their prevailing frame of mind, then, is at once ardent and relaxed, violent and enervated. Death is often less dreaded by them than perseverance in continuous efforts to one end.”
Alexis de Tocqueville
Frequently Asked Questions
How do trend followers define risk?
Trend followers define risk not as volatility or uncertainty, but as the probability of permanent loss of capital. They manage it through position sizing, stop losses, and diversification across uncorrelated markets, all governed by systematic rules rather than judgment calls in the moment.
Why do trend followers accept drawdowns instead of avoiding them?
Because drawdowns are a structural feature of any strategy that cuts losses and lets winners run. Avoiding drawdowns means cutting positions early, which means missing the large moves that generate the returns. The acceptance of periodic loss is inseparable from the pursuit of outsized gain.
Is trend following reckless?
No. Trend following is the opposite of reckless. Every position is sized according to predefined risk parameters. Losses are capped. The approach accepts uncertainty about direction while maintaining strict control over how much capital is at risk at any given time. It is calculated risk, not blind speculation.
What is the relationship between risk and return in trend following?
Trend following is explicitly designed to seek asymmetric returns: small, frequent losses offset by large, infrequent gains. The managed futures track record going back decades reflects this structure. There is no way to capture the large gains without accepting the small losses and the periods of sideways or negative performance in between.
Trend Following Systems
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