Trend-following strategies essentially involve riding the trend, which entails buying when the price is rising and selling when the price begins to decline (both for a prolonged time period). With trend-following strategies, one should only need to keep a watch on the market for any new trends without trying to anticipate or predict.

When an asset/stock is moving upward, trend traders take a long position. Higher swing lows and higher swing highs are indicators of an uptrend. When an asset is trending lower, trend traders may choose to open a short position. Lower swing lows and lower swing highs are indicators of a downtrend.

Trend following strategies – What are they

There different types of trends following strategies with each trend trading strategy being unique and employing a range of price action techniques and indicators. A stop loss should be utilized to control risk for all techniques.

A stop loss is set for an uptrend below the swing low made just before entrance or below another support level. A stop loss is frequently positioned immediately above a previous swing high or above another resistance level for a short trade in a downtrend.

When looking for trend trading strategies, traders frequently combine various techniques. A trader may watch for a break through a resistance level to signal the beginning of a possible move higher, but they would only place a trade if the price was trading above a particular moving average.

The following are some of the trend following strategies that include-

·       Moving averages

·       Momentum indicators

·       Trendlines and chart patterns

·       Bollinger bands

·       Moving Average Convergence Divergence indicator or MACD

·       On Balance Volume (OBV) Indicator

Conclusion

Any pattern that appears frequently enough to the market is likely to get their attention. The same goes for trend following strategies that has recently performed very well; many traders are likely to be aware of it. However, a specific method or strategy will stop functioning as effectively as it did in the past if too many traders try to use it.