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

Identify Trend Direction – Use a 200 EMA or ADX

Wait for a Pullback – Look for a retracement to a key MA or trendline

Confirm with Price Action – E.g., bullish engulfing candle

Enter Trade – On breakout or candle close

Set Stop-Loss – Below swing low (in uptrend) or swing high (in downtrend)

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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