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IntermediateH4 - Daily

Trend Following

Identify and ride market trends using moving averages and momentum indicators

Expected Win Rate:55-65%

Trend following is one of the most popular and time-tested trading strategies. The core principle is simple: identify the direction of the market trend and trade in that direction until the trend shows signs of reversing.

How Trend Following Works

Trend followers believe that markets tend to move in sustained directions for extended periods. By identifying these trends early and riding them, traders can capture significant profits.

  • Use moving averages to identify trend direction
  • Enter trades in the direction of the trend
  • Hold positions until trend reversal signals appear
  • Use trailing stops to protect profits

Key Indicators

Several technical indicators help identify and confirm trends:

  • Moving Averages (20, 50, 200 EMA/SMA)
  • MACD (Moving Average Convergence Divergence)
  • ADX (Average Directional Index)
  • Parabolic SAR

Entry Rules

A typical trend following entry occurs when:

  • Price is above the 200 EMA (for uptrends)
  • Shorter MA crosses above longer MA (golden cross)
  • ADX is above 25 indicating a strong trend
  • Price pulls back to a key moving average

Exit Rules

Exit your position when trend reversal signs appear:

  • Price closes below key moving average
  • Moving average crossover in opposite direction
  • ADX drops below 20
  • Trailing stop is hit

Advantages

  • +Can capture large market moves
  • +Works across all markets and timeframes
  • +Clear rules for entry and exit
  • +Does not require constant monitoring

Disadvantages

  • -Whipsaws in ranging markets
  • -Late entries can reduce profit potential
  • -Requires patience during drawdowns
  • -Multiple small losses before catching a trend

Best Suited For

  • Traders who can hold positions for days/weeks
  • Those who prefer systematic, rule-based trading
  • Traders comfortable with lower win rates but larger wins
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