Master the art of trend-following strategies and learn how to identify, enter, and profit from market trends with confidence.
"The trend is your friend" - This fundamental principle suggests that trading in the direction of the prevailing trend increases your probability of success.
Look for buying opportunities during pullbacks in an established uptrend. Higher highs and higher lows characterize uptrends.
Identify selling opportunities during rallies in a downtrend. Lower highs and lower lows define downtrends.
Moving averages are the foundation of trend identification. When price is above the moving average and the MA is sloping upward, it indicates an uptrend.
Connect swing lows in an uptrend or swing highs in a downtrend to draw trendlines. Valid trendlines require at least two touches.
Connect ascending lows. Price should bounce off this line, providing support.
Connect descending highs. Price should reject at this line, providing resistance.
The most basic trend identification method. In an uptrend, each peak should be higher than the previous peak, and each trough higher than the previous trough.
Enter on temporary retracements against the main trend
Enter when price breaks above resistance in an uptrend
Enter when price bounces off a key moving average
Exit when trend structure breaks (lower high in uptrend)
Exit at predetermined resistance/support levels
Move stop loss to lock in profits as trend continues
Even the best trend-following strategies can fail. Proper risk management ensures you survive losing streaks and capitalize on winning trends.
Place stops beyond key levels with some buffer
Use Average True Range to set dynamic stops
Fixed percentage below entry (e.g., 2-3%)
AAPL formed a strong uptrend from March to September 2023, providing multiple entry opportunities on pullbacks to the 20-day EMA. The trend was confirmed by consistently higher highs and higher lows.
EUR/USD showed a clear downtrend with multiple opportunities to enter short positions on rallies to resistance levels. The 50-day moving average acted as dynamic resistance throughout the trend.
What characterizes a valid uptrend?
Trade in the direction of the prevailing trend
Use multiple timeframes for confirmation
Always manage risk with proper stop losses
Be patient for high-probability setups