Trend Following
Trade MechanicsA strategy that trades in the direction of an established trend, accepting a lower win rate for occasional large winners.
Trend following is a strategy that enters trades in the direction of an established price trend, on the premise that a trend already in motion is more likely to continue than reverse. Trend followers typically use tools like moving averages or breakout levels to confirm a trend and time entries, and they accept a lower win rate in exchange for occasionally large winners.
The main risk is choppy, range-bound markets, where trend-following signals repeatedly trigger and reverse, generating a string of small losses until a real trend emerges.