“The trend is your friend” is one of the oldest trading sayings—here’s how to follow trends!

Here’s everything about trend following strategies.

What Is a Trend?

A trend is the direction of price movement:

• Uptrend: Higher highs (HH) and higher lows (HL) → price goes up.
• Downtrend: Lower highs (LH) and lower lows (LL) → price goes down.
• Sideways/Horizontal Range: Price moves between support/resistance.

How to Identify a Trend

1. Higher highs/lows (HH/HL): Look for price making HH/HL (uptrend) or LH/LL (downtrend).
2. Moving Averages:
   • Price above 50-day and 200-day SMA = uptrend.
   • Price below 50-day and 200-day SMA = downtrend.
   • 50-day SMA above 200-day SMA = long-term uptrend (golden cross).
3. Trendlines:
   • Connect swing lows to make an uptrend line.
   • Connect swing highs to make a downtrend line.

Trend Following Strategies

1. Moving Average Crossover

• How it works: Use two moving averages—fast (e.g., 50-day) and slow (e.g., 200-day).
  • Buy: Fast MA crosses above slow MA (golden cross).
  • Sell: Fast MA crosses below slow MA (death cross).

2. Trendline Bounce

• How it works:
  • Uptrend: Buy when price bounces off uptrend line.
  • Downtrend: Sell/short when price bounces off downtrend line.

3. Pullback to Moving Average

• How it works:
  • Uptrend: Price pulls back to 50-day SMA (or EMA) → buy.
  • Downtrend: Price pulls back to 50-day SMA → sell/short.

4. Breakout Trading

• How it works:
  • Uptrend: Price breaks above resistance → buy.
  • Downtrend: Price breaks below support → sell/short.
  • Confirm with volume: High volume on breakout = stronger signal.

Strategy	How It Works	Entry Signal
Moving Average Crossover	Fast MA crosses slow MA	Golden cross (buy)
Trendline Bounce	Price bounces off trendline	Bounce off uptrend line (buy)
Pullback to MA	Price pulls back to MA	Pullback to 50-day in uptrend (buy)
Breakout Trading	Price breaks support/resistance	Break above resistance (buy)

How to Exit a Trend

• Trailing stop-loss: Move your stop-loss up as price rises (uptrend)—locks in profits.
• Moving average stop: Sell when price closes below 50-day SMA (uptrend).
• Trendline break: Sell when price closes below uptrend line.

Common Trend Following Mistakes

• Fighting the trend: Don’t buy in a downtrend—“don’t catch a falling knife”.
• Exiting too early: Let profits run—don’t sell too soon in a strong trend.
• No stop-loss: Always have a stop-loss to limit risk.

Frequently Asked Questions

How long should I hold a trend?

As long as the trend lasts—until the trend breaks (e.g., moving average crossover, trendline break).

Should I use SMA or EMA for trend following?

SMA is smoother; EMA reacts faster—use what fits your style.

What if the trend reverses?

That’s why you have a stop-loss—exits when the trend ends.

Final Thoughts

Trend following works well—identify the trend, enter with a strategy, use a stop-loss, and let profits run!