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Trend Following — A Simple Strategy for Beginners
A trend is the main direction of price: up, down or sideways. How to identify it with trendlines and moving averages, and why trading with it is safer.
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What a trend is
A trend is the dominant direction of price over a period:
- Uptrend: higher lows and higher highs.
- Downtrend: lower highs and lower lows.
- Sideways: highs and lows oscillating in a range.
How to identify it
- Trendlines. Connect rising lows for an uptrend, falling highs for a downtrend.
- Moving averages. Price above the 200-period average points to an uptrend; below it, a downtrend. A stacked MA 20 above MA 50 above MA 200 signals a strong uptrend.
- Swing structure. A sequence of higher highs and higher lows confirms an uptrend; the reverse confirms a downtrend.
Trade with the trend
- Uptrend: buy pullbacks, sell into strength, avoid shorting.
- Downtrend: the trend is down until it changes; avoid buying just because it looks cheap.
- Sideways: trend-following works poorly here — support and resistance are more useful.
A note for beginners
Fighting the trend (counter-trend scalping) is an advanced game with thin edges. Trading in the direction of the trend is generally safer and more forgiving for newer investors.
Spotting a trend change
An uptrend is at risk when price falls below the 200-period average, the sequence of higher lows breaks, or a trendline support is decisively broken. When the structure changes, the strategy should change with it.
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