Trend Following Strategy
Trend following is one of the oldest systematic 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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Important disclosures
Informational purposes only
Tradewink is published by Tradewink LLC, which is not a registered investment adviser, broker-dealer, commodity trading advisor, or financial planner. All data, signals, and analytics on this page are general, impersonal, and for informational purposes only. They do not constitute investment advice, financial advice, or a recommendation to buy or sell any security or other instrument.
Trading risk
Past performance does not guarantee future results. Trading involves substantial risk of loss, including the possibility of losing more than your initial investment. You are solely responsible for your own trading decisions.
Hypothetical & backtested results
These results are based on simulated or hypothetical performance results that have certain inherent limitations. Unlike the results shown in an actual performance record, these results do not represent actual trading. Also, because these trades have not actually been executed, these results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated or hypothetical trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to these being shown.