Overview
Trend following accepts missing the start and the end of a move in exchange for trading its middle. Entries come on pullbacks; exits come when structure breaks against the trend.
Objectives
- Trade only established trends
- Enter on pullbacks, not breakouts
- Exit on structural failure
Suitable market conditions
- Higher highs and higher lows (or the reverse)
- EMAs ordered and sloping
Tools and indicators
- EMA 20 / 50 / 200
- Market structure
Market bias
The direction of the trend on the trading timeframe.
Entry rules
- Wait for a pullback to the EMA 20 or 50
- Enter when price resumes in the trend direction
Confirmation
- Higher low holds
- Close back above the EMA 20
Stop loss and take profit
- Stop below the pullback low
- Trail the stop below each new higher low
Risk management
- Smaller position when the pullback is deep
- No adding to losing positions
Valid example
Daily uptrend, pullback to EMA 50 holds as a higher low, next candle closes back above EMA 20. Entry with the stop below the higher low.
Invalid example
Pullback closes below the previous higher low: that is a CHoCH, not a pullback.
Common mistakes
- Calling tops in strong trends
- Entering late after extended moves
Advantages
- Simple rules
- Captures large moves
Limitations
- Gives back profit at the end of trends
- Struggles in ranges
No strategy guarantees profit or a particular win rate. Test any approach on a demo account and size every trade from a fixed risk.