Trend Following Strategy
Trend following is one of the oldest and most reliable trading strategies. It identifies stocks in established uptrends (or downtrends) and enters positions in the direction of the trend, holding until the trend reverses. The key insight: trends persist longer than most traders expect.
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How It Works
- 1
Identify trend direction using 20/50 EMA crossover and ADX > 25
- 2
Wait for a pullback to the 20 EMA (or VWAP) as an entry opportunity
- 3
Enter when the pullback finds support and resumes in the trend direction
- 4
Trail stop using the 20 EMA or 2x ATR below the current price
- 5
Exit when the trend structure breaks (lower low in uptrend, higher high in downtrend)
Best For
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Frequently Asked Questions
What is trend following?
Trend following is a trading strategy that enters positions in the direction of the prevailing trend and holds until the trend shows signs of reversing. It relies on the principle that trends tend to persist.
What indicators confirm a trend?
ADX above 25 indicates a strong trend. Moving average alignment (20 > 50 > 200 EMA for uptrend), higher highs and higher lows, and expanding volume all confirm trend strength.
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