Abstract — Trend following rewards patience and discipline, but only if exits are as explicit as entries. This article turns a popular maxim into a complete operating playbook: robust trend definitions, bend (reversal) detection, volatility-scaled sizing, liquidity-aware overlays, and checklists that keep winners running without giving back the bulk of gains.

TL;DR (actionable)

• Ride confirmed trends: use simple, robust signals (e.g., 1–3m momentum, price above medium-term MA) with volatility-scaled sizes.
• Respect the bend: exits trigger on price (momentum roll or MA break), not on opinions; scale down in thirds.
• Condition by liquidity: allow higher gross in expanding liquidity; cut gross and shorten horizons in contraction.

1) Defining “trend” in practice

We keep definitions simple and auditable. A trend exists when price confirms on your trading horizon and the tape respects that direction across breadth/time:

• Momentum (1–3m): positive/negative rate-of-change or a short MA above/below a medium MA.
• Breadth: share of constituents confirming the move (equities/credit sleeves).
• Carry/term structure: where relevant (FX/commodities), positive carry supports trend persistence.

2) Entries that don’t overfit

• Confirmation first: wait for the momentum/MA filter to align with breadth on your horizon.
• Stage exposure: build positions in thirds on subsequent confirmations rather than all at once.
• Avoid micro-timing: no predicting pullbacks; structure entries around your signal cadence.

3) The bend: how we detect and act

Trends end in two main ways: rolling (momentum fades) or breaking (level/MA violations). We codify both.

3.1 Bend signals

• Momentum roll: your 1–3m ROC flips or short MA crosses back through medium MA.
• Level/MA break: close below/above the chosen moving average or trailing stop.
• Breadth deterioration: broad participation weakens (fewer names above MA).

3.2 Exit protocol

• Scale out ⅓-⅓-⅓: take the first third on momentum roll, the second on MA break, the final on failed retest.
• Time stop: if neither target nor exit hits within your window, reduce—opportunity cost is risk.
• Do not re-enter without a fresh confirmation print.

4) Sizing & risk governance

• Volatility-scaled positions: target equalized risk; shrink size as realized vol rises.
• Gross/net gates: based on liquidity composite: ~0.6× in contraction, up to ~1.0× in expansion.
• Drawdown governors: automatic gross cuts when sleeve/book drawdowns breach pre-set levels.

5) Liquidity as context (why trends persist—or fail)

Expanding liquidity compresses risk premia and extends trends; contracting liquidity amplifies reversals. We enforce:

• Higher gross/looser profit bands when liquidity is improving and plumbing is calm.
• Lower gross/shorter horizons when liquidity deteriorates or funding stress flashes.

6) Overlays (tripwires you don’t debate)

• Funding-stress override: if spreads, haircuts, or basis breach thresholds, de-gross regardless of trend.
• Correlation cap: prevent sleeves from collapsing into a single macro bet.
• Event guardrails: pre-define how to carry positions through binaries (cuts, data, roll dates).

7) Case studies (principle-first, abstracted)

Persistent trend in easy liquidity: momentum + breadth confirm for months; carry is positive. Scaling entries and letting profits run outperforms frequent profit-taking. Lesson: let the tape pay you; exits are for bends, not boredom.

Sharp bend after liquidity turns: composite flips negative, breadth cracks; MA break triggers staged exits. Preserving past gains beats guessing the top. Lesson: exits must be mechanical.

8) Implementation by sleeve

• Equities: trend + breadth for entries; trailing stops on index/sector sleeves; avoid overconcentration.
• Rates: align with regime (reflation vs disinflation); use curve structure for expression.
• Credit: trend by spreads; respect primary-market tone; watch liquidity inflections.
• FX & commodities: combine momentum with carry/term structure; calendars to manage roll risk.

FAQs

Isn’t trend “late” by definition?
Yes—and deliberately so. Paying a “confirmation tax” buys higher hit rates and fewer false starts.

How do you avoid giving back gains?
Mechanical exits on momentum rolls/MA breaks, staged profit-taking, and drawdown governors at both sleeve and book levels.

Do signals work the same in all regimes?
No. We scale gross and tighten horizons when liquidity contracts; expansion allows more patience.

Conclusion

Trends reward discipline, not predictions. Codify what “friend” means (confirmation, staging, vol-scaling) and what “bend” means (momentum roll, MA break, breadth crack). Then act without hesitation. That’s how you compound without donating gains back to the tape.

Compliance: For informational purposes only; not investment advice or a solicitation. Past performance is not indicative of future results.