Trend-following trading is probably the most popular and famous way for traders to generate trading signals easily by some strategies, Traders expect that by using a trend-following trading approach they will be able to realize larger winning trades by capturing long-lasting trending movements out there

Another important aspect of trend-following trading is that traders must realize that as trend-following traders first they will not be able to capture the whole trending move by some strategies Since trend-following traders must wait for a trend to be established first to start in a great way, by definition, they cannot capture the first part of a trend at all. Especially new and inexperienced traders make the mistake of trying to predict when a new trend will emerge before there are actual signals that a trend is present.

This predicting mindset can be dangerous because the trader is tempted to take trades too early and then realize unnecessary losses. Waiting for a trend to emerge and being patient are important skills that trend-following traders have to develop.

Here are some trend-following strategies:

Chart Pattern Continuations

The classic way of trading trend continuations utilizes chart patterns and price action concepts. Chart patterns are so-called connectors as they connect trending phases during trending markets. Trends do not move in a straight line and the price usually goes back and forth. Chart patterns can often be found during the corrective trend phases as the ongoing trend is pausing. A breakout from a chart pattern often signals a trend continuation.

The first phase showed the characteristics of a rectangle with horizontal support and resistance boundaries. As a trend-following trader, you want to avoid trading within a sideways correction because the price is just bouncing up and down. Ideally, the trader is waiting for a close of the price below the support level before taking trend-following trades.

Moving Average Channel

Although many traders believe that price action trading is superior to indicator signals, I would not dismiss the power of trading indicators and even some of the best traders of all times are using indicators in their trading.

Moving averages are the perfect trading tool for trending markets as they often describe the trend effectively. In the screenshot below, we can see that the bullish trend is advancing above the moving average channel. Trend-following traders are looking for signals when the price is moving back into the channel and then they trade the rejection away from the channel.

The benefit or advantage of using indicators is that the signals are 100% objective which can be seen as well. New and inexperienced traders often struggle with the subjective nature of pure price action trading; an indicator might be a great addition and option as well to your arsenal if you are looking for an objective tool to complement your decision-making this would be an amazing thing,

Trendline Bounce

Trend line bounces, as their name suggests, are trading tools that are only used for trending markets. Trendlines describe a trending phase where a trader connects the low points in an uptrend (and the high points during a downtrend). For a trendline, you require three touchpoints to be valid.

Trendlines are a great tool for trend-following trading because, by timing trade entries around a trendline, the trader is waiting for the price to pull back significantly instead of chasing the price as it moves into the trend direction. Traders are, therefore, able to buy a trending market at a discount at a significantly lower price,

Pivot Point Trend Following

Although pivot points are considered an indicator, they are more than that because are use important price components. The central pivot point that I have activated in the following charts provides the average price of yesterday´s price action. As trend-following traders, using the average daily cost is important for the trending environment.

During the newly unfolding downtrend, the price keeps pushing into the pivot point and continuously rejects it. Such pivot point retests might be used as trading signals in a trend-following strategy.

Final Words

When it comes to trend-following trading, we can find an abundance of trading strategies and different techniques. Although this article explained only five ways for trading trending markets, the underlying concepts of trend-following trading are always the same.

First, you identify a trending market and then you can choose from a wide variety of tools and concepts to determine trading opportunities in the trend direction. Pullback and breakout concepts are usually the common choices hereby. The goal of a trend-following trading strategy is to optimize large winners by catching long-lasting trending phases. If you have been trying to trade a trend-following strategy but haven’t seen the success that you were hoping for, analyze your exit approach and evaluate its effectiveness in your trading journal.

Whenever I work with traders, I often see a huge potential for improvement when it comes to exit strategies.