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Whale Trading

Trend Following Strategies: Riding the Main Move, Not Picking Tops and Bottoms

In this section we focus on trend following strategies.

The core idea is not:

  • “Buy the exact bottom and sell the exact top,”
    but rather:

“Accept that you will be a bit late,
but try to ride a strong existing trend for as long as it lasts.”

As Ed Seykota, a legendary trend follower, put it:

“The trend is your friend.”

The goal is not to worship the slogan,
but to internalise that:

  • Catching big chunks of major trends
  • Often matters more than precision entries
    if your risk management is sound.

The diagram below compares:

  • Left: A strong uptrend, with staggered entries along a moving average and a long trend leg
  • Right: A ranging market, where the same trend-following rules lead to frequent small stop-outs

Understanding this contrast helps you distinguish between:

  • Markets where trend following has an edge and
  • Markets where it mostly produces noise and small losses.

1. What Is Trend Following? – Following, Not Predicting

The basic philosophy of trend following is:

“Do not try to predict turning points.
Instead, identify when a trend is underway
and align your trades with it.”

In practice, trend following usually combines:

The exact combination changes from strategy to strategy,
but the underlying logic is the same:

  • Identify a dominant direction
  • Accept several small losses
  • In exchange for a few large winning trends.

2. When Does Trend Following Work – and When Not?

Trend following performance is highly dependent on market regime.

2-1. Favourable environments

Trend following tends to work well when:

  • There is a clear uptrend or downtrend on the daily or 4h timeframe
  • The swing vs correction structure from
    swing-vs-correction
    is relatively clean
  • Trend indicators from Trend Indicators
    (MA slope, DMI/ADX, etc.) point clearly in one direction

In such conditions, a trend system typically produces:

  • Several small losing trades, and
  • A few outsized winners that drive the overall result.

2-2. Difficult environments

Trend following struggles in:

  • Sideways ranges, where price oscillates between support and resistance
  • Macro event environments with frequent whipsaws
  • High-volatility but low-directionality environments
    (see volatility)

In these cases:

  • Trend entries are repeatedly stopped out
  • It is hard to stay in any one direction long enough to extract a large move

For that reason, robust trend following usually:

  1. Starts with a regime filter
    (trend vs range; see Trend Indicators and Swing vs Correction)
  2. Reduces size, switches to Mean Reversion,
    or stands aside in choppy ranges.

3. Strategies Covered in This Trend Following Section

We break down trend following into several concrete strategies.

3-1. Moving Average–based: MA, MA-60, Golden/Death Cross

  • MA Strategy
    Basic moving average trend following
    → Using short-, mid-, and long-term MAs
    to define trend direction and pullback entries.

  • ma-60
    60MA-based swing strategy
    → Treating a long-term MA (e.g. 60-day on the daily)
    as a key “trend anchor” for swing trades.

  • cross
    Golden Cross / Death Cross strategy
    → Interpreting crossovers of a shorter and longer MA
    as potential trend initiation or reinforcement signals.

3-2. Momentum-based: MACD, DMI/ADX

  • macd
    MACD trend following strategy
    → Using MACD signal line crosses and zero-line breaks
    to track trend strength and shifts.

  • dmi-adx
    DMI/ADX trend strength filter
    → Using +DI, -DI, and ADX
    to decide whether the environment justifies trend following at all.

3-3. Composite: Ichimoku Trend Following

  • ichimoku
    Ichimoku-based trend strategy
    → Using the cloud, conversion/base lines, and shifted lines
    to combine trend and support/resistance into one framework.

Throughout these documents, we will compare:

  • How different tools trigger at different points in the same trend
  • Which ones are more conservative and slow,
    and which ones are fast but noisy.

4. Common Principles of Trend Following

Despite the variety of implementations,
most trend following systems share a few core principles.

  1. Cut losses short, let winners run

    • As described in risk-management,
    • The edge often comes from accepting many small losses
      in exchange for a few very large winners.

  2. Clear invalidation

    • You need a precise condition for
      “my trend assumption is wrong now.”
    • Often defined by:
      • Recent swing high/low breaks
      • Clean MA breaks
      • Ichimoku cloud violations

  3. Re-entry planning

    • Strong trends include pullbacks and shake-outs.
    • Without a plan to re-enter a valid trend,
      it is easy to be shaken out early and then miss the core move.

  4. Position sizing and scaling plan

    • Instead of betting large from the start,
      you operate within risk-management rules:
      • Possibly pyramiding as the trend confirms
      • Or scaling out as signs of exhaustion appear

5. Suggested Study Path

To make the most of trend following,
the following study order is recommended:

  1. Context and chart basics

  2. Trend indicators

    • trend
      for MA, MACD, Ichimoku, DMI/ADX basics and trend definition.

  3. Trend following overview (this document)

    • Understand which strategies exist
      and how they differ conceptually.

  4. Individual strategies

  5. Risk and portfolio level

6. Checklist Before You Trade Trend Following Live

Before deploying a trend following system with real capital,
it helps to answer a few key questions:

  1. If I run several systems at once,
    is my total risk within risk-management limits?

From here, a natural next step is:

where we start with the most basic moving average trend following setup
and gradually add detail around entries, exits, and risk.