Trend-Following Strategies

Trend-following strategies aim to enter trades in the direction of the prevailing trend and stay in them until signs of reversal. The idea: “The trend is your friend until it ends.”

Core Tools for Trend-Following

  • Moving Averages (MA)
  • ADX (Average Directional Index)
  • Trendlines and Channels
  • Higher Highs & Higher Lows / Lower Lows & Lower Highs
  • MACD (Moving Average Convergence Divergence)

Popular Trend-Following Strategies

1. Moving Average Crossover

  • Tool: Two Moving Averages (e.g., 50 EMA & 200 EMA)
  • Signal:
    • Buy: Short-term MA crosses above long-term MA (Golden Cross)
    • Sell: Short-term MA crosses below long-term MA (Death Cross)
  • Works best in: Strongly trending markets

2. ADX + Price Action

  • Tool: ADX indicator
  • Signal:
    • ADX > 25 = Strong trend
    • Combine with higher highs/lows (for uptrend) or lower lows/highs (for downtrend)
  • Entry: On retracement with confirmation
  • Exit: When ADX starts to drop or support/resistance breaks

3. Trendline Break-and-Retest

  • Tool: Trendlines
  • Signal:
    • Draw a trendline along higher lows (uptrend) or lower highs (downtrend)
    • Enter on break-and-retest with bullish/bearish candle confirmation
  • Stop-Loss: Below/above the recent swing
  • Take-Profit: At the next major structure level

4. Donchian Channel Breakout

  • Tool: Donchian Channel (tracks highest high & lowest low over N periods)
  • Signal:
    • Buy: Price breaks above upper channel (indicates strong upward momentum)
    • Sell: Price breaks below lower channel
  • Good for: Trend initiation after consolidation

5. 200 EMA Trend Strategy

  • Tool: 200 EMA
  • Signal:
    • Trade only in the direction of the trend indicated by the 200 EMA
    • Use lower timeframes (e.g., 15m or 1H) for entries
    • Combine with candlestick patterns (e.g., engulfing, pin bar) for precision

6. MACD Trend Strategy

  • Tool: MACD
  • Signal:
    • Buy when MACD line crosses above signal line in an uptrend
    • Sell when MACD crosses below signal line in a downtrend
  • Use: To confirm continuation entries or filter false moves

Example Workflow: Trend-Following Strategy

  1. Identify Trend Direction – Use a 200 EMA or ADX
  2. Wait for a Pullback – Look for a retracement to a key MA or trendline
  3. Confirm with Price Action – E.g., bullish engulfing candle
  4. Enter Trade – On breakout or candle close
  5. Set Stop-Loss – Below swing low (in uptrend) or swing high (in downtrend)
  6. Target Profit – Based on risk-reward ratio (1:2 or 1:3), next structure, or trailing stop

Best Practices for Trend-Following

  • Use higher timeframes (1H, 4H, Daily) for reliable trend direction
  • Avoid ranging markets – trend strategies underperform in sideways conditions
  • Combine multiple indicators (e.g., MA + MACD) for confirmation
  • Don’t chase the trend — wait for a pullback or breakout confirmation
  • Keep a journal to refine entries, exits, and market selection

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