There is a saying among professional traders that has survived for over a century.
“The trend is your friend.”
It sounds simple. It is simple. And it works — because markets trend more than most people realise, and most retail traders spend their time fighting those trends instead of following them.
Trend following is not about predicting where price will go. It is about identifying where price is already going — and getting on board.
Trend following is a strategy that identifies an established directional move and enters trades in the direction of that move — holding until evidence of reversal appears.
Trend followers are not trying to catch tops or bottoms. They enter after a trend is confirmed and exit when it ends. They miss the first part of the move and the last part. They capture the middle — which is where the most reliable money is made.
Before entering any trend following trade — you must confirm the trend exists.
Higher highs and higher lows = uptrend.
Each peak is higher than the last. Each pullback holds above the previous pullback.
As long as this structure is intact — the uptrend is alive.
Lower highs and lower lows = downtrend.
Each rally fails below the previous high. Each drop breaks below the previous low.
As long as this structure is intact — the downtrend is alive.
Use the trend identification skills from the Reading Charts subject to confirm direction before anything else.
In an uptrend — buy the pullback.
Price is making higher highs and higher lows.
Wait for price to pull back to a key support level — previous swing high turned support, or a rising moving average.
Wait for a bullish confirmation candle at that level.
Enter on the close of the confirmation candle.
Stop loss: Below the pullback low — if price breaks this level the higher low structure is broken and the uptrend may be over.
Take profit: Previous swing high, next resistance level, or trail the stop as trend continues.
The 50 and 200 moving averages are the most commonly used trend filters.
Simple rule:
These rules eliminate a huge number of bad trades by ensuring you only trade in the direction of the dominant trend.
The challenge with trend following is holding long enough to capture the full move.
Most traders exit too early — taking 1R when the trend delivers 5R to those who hold.
Trailing stop technique:
As price makes new highs — move your stop loss up to below each new higher low.
This locks in profit progressively while allowing the trend to continue.
Only exit when price breaks below your trailing stop — signalling the trend may be reversing.
Markets trend because of human psychology.
When price starts rising — more buyers appear. Those buyers push price higher. The rising price attracts more buyers. Momentum builds.
This self-reinforcing cycle creates trends that last far longer than logic would suggest.
Trend followers do not fight this cycle. They ride it — and step off when the cycle ends.
In the next topic we will study breakout trading — entering at the precise moment a new trend begins.