“The trend is your friend” is one of the most famous sayings in trading, and without question, my favorite quote ever attributed to Jesse Livermore.
It sounds simple. It sounds obvious. And because of that, most traders dramatically underestimate how deep this concept actually runs.
In my own career, no principle has proven more important than learning how to live, breathe, and trade with the trend. Once I fully internalized it, my biggest losses shrank, my best trades expanded, and my overall consistency improved in a way no single setup or indicator ever could.
This is a bigger topic than most people realize, so we’re going to cover four core areas:
- How to define a trend
- How to build trading rules around trends
- How those rules help you capture big moves and stay out of trouble
- What causes trends to begin — and what causes them to end
Why I Became Obsessed With Trends
This obsession started when I was early in my career and just beginning to break into the upper tier at Trillium.
I was close to cracking the top 10 on the leaderboard, but something kept holding me back: consistently large losses. Losses that amounted to millions of dollars over time.
That’s when it hit me — this isn’t normal.
If I could simply eliminate or reduce those outsized losses, the impact on my PnL would be disproportionate. So I did a deep dive into my entire trading history.
One thing became abundantly clear:
- My best trades worked immediately.
- My largest losses almost always came from fighting the trend.
It sounds obvious in hindsight, but it wasn’t obvious at the time. And the more I studied it, the more I realized this pattern holds true across every experience level — from beginners to eight-figure traders.
Your best trades tend to work right away.
That heuristic alone is powerful if you actually respect it.
Why Trading With the Trend Works
There are plenty of clichés in trading that don’t hold up over time. This one does.
Going with the trend offers several structural advantages:
First, it increases win rate and reward. When you’re trading with the trend, more market participants are on your side.
Second, it opens the door to asymmetric skew. Trends are how you catch moves that are far larger than your initial risk.
Third, it minimizes drawdowns and heat. You no longer need to average down or sit through extended pain waiting to be “right.”
And yes — everything can be structured around the trend.
What Is a Trend, Really?
Before you can trade trends, you have to define them.
Most traders never do.
At its most basic level, a trend is price discovering new prices. If we think back to basic math, we’re looking at the slope of a line.
- A positive slope = uptrend
- A negative slope = downtrend
- A slope of zero = consolidation
Range-bound stocks stay within prior prices. Trending stocks don’t.
This distinction alone has massive implications. I see traders churn themselves to death taking endless paper cuts in range-bound environments, instead of waiting for a true breakout where a trend can actually develop.
Core Characteristics of Trends
Beyond slope, trends have structure.
In an uptrend, that structure usually shows up as higher highs and higher lows.
You’ll often see an initial leg higher, followed by a pullback that holds above the prior low — your first higher low. Then the process repeats: retest highs, higher low, retest highs, higher low. Eventually, the compression resolves and price breaks out.
These are some of the cleanest environments to trade because they align momentum, structure, and participation.
You see this pattern over and over again — in SPY, NVDA, FSLR, and countless other names across all timeframes.
Technical analysis is fractal. Zoom in or zoom out — the concepts hold.
Common Tools for Defining Trends
There are many ways to define trends, and none of them work in isolation. The power comes from confluence.
Some of the most effective trend identifiers include:
- VWAP: A stock holding above VWAP is in an intraday uptrend. Below VWAP, a downtrend.
- Moving averages: Sustained holds above or below key averages define trend health.
- Trendlines: Clean trendline holds signal continuation; breaks often signal regime change.
- Prior bars: Holding or breaking prior bar highs/lows is one of the most effective trailing stop mechanisms in strong trends.
- Reference prices: The unaffected price prior to breaking news or a catalyst. Holding above it signals acceptance; losing it signals rejection.
Individually, these tools are useful. Combined across multiple timeframes, they become extremely powerful.
Alignment Across Timeframes
The best trends occur when multiple participants are aligned.
You want:
- Day traders
- Swing traders
- Institutions
- Funds
- Long-term investors
all leaning in the same direction.
The Tesla breakout above $900 (pre-split) is a textbook example. Weekly breakout. Daily breakout. Intraday breakout. Earnings catalyst. Shorts trapped. Institutions buying.
That’s how you get multi-X moves.
This is where trailing stops shine. You don’t need to pick the top. You just need to stay with the move as long as the trend structure remains intact.
Countertrend Trading (And Why It’s Dangerous)
There are ways to trade countertrend — but they require patience and precision.
Fading strength or weakness blindly is how traders blow up.
If a stock is melting down, buying just because it “looks overextended” is a great way to get liquidated. Waiting for a clear countertrend signal — like a break of prior bar highs — dramatically reduces drawdowns.
Learning to wait for confirmation was one of the first things that transformed my biggest losses into my biggest gains.
Rules Around Trends
Once you define trends, you need rules.
One of my core rules, developed alongside Kenny at SMB, is simple:
Never be long a stock steadily holding below VWAP unless it capitulates — and vice versa.
Another rule: avoid no man’s land. Range-bound stocks offer the worst risk-reward and the most churn.
You must define everything. What does capitulation mean to you? What does acceptance look like? Vagueness is where losses hide.
How Trends Begin
Trends usually start with catalysts and resolution.
Breaking news. Earnings. Fundamental shifts. Breakouts from consolidation.
The more trend signals that align at once, the more powerful the move tends to be.
Momentum traders pile in. Institutions position. Shorts cover. Liquidity expands. That’s how real trends are born.
How Trends End
Trends don’t last forever.
Common endings include:
- Capitulation with extreme volume and price extension
- Accelerating legs that become unsustainable
- Counter-trend fundamental news
- Lack of consolidation or acceptance
Peak pessimism or peak euphoria often marks turning points. Massive volume spikes are frequently the clue.
Your Homework
This isn’t theory — it’s a project.
- Define every way you identify a trend.
- Document real chart examples with detailed write-ups.
- Create rules for trending vs range-bound environments.
- Systemize why trends begin and why they end — based on your own data.
Document everything. Then document it again.
No trader — regardless of timeframe or style — wouldn’t benefit from doing this work.
Because at the end of the day, one rule still holds above all else:
The trend is your friend.
Once you understand trends, it’s important to understand No Man’s Land.
