Risky Business?
One of the goals of Trend Following was to better explain terms like “risk” and “risky” (see p. 89-95). Saying something is “risky” tells you nothing. To those who don’t understand trend following (or for those who refuse to admit the strategy’s success) the easy way to feel good about ignorance is to quickly say, “trend following is risky.”
We have to risk to find opportunity of gain. If you don’t risk, there is no possibility for gain. Risk is not a four-letter word. A good example? Trend followers do not make money each month with their “risks”. They never have. They don’t expect a gain every month. Trend followers see just as many losing months as winning months. That scares you? It should not. At least trend followers understand and acknowledge there will be down months when taking calculated risk. On the other hand, those who promise positive returns every month are the cons.
View trend following performance for January 2005. It was a down month across the board for most trend followers. I hope, “Oh my trend following lost money for a month it must not work!”, was not your reaction. Don’t look at one month in isolation and attempt a judgment — you would be foolish. Look at the decades of trend following performance (month by month) across numerous trend following trading professionals — there is your real insight.
