Trend following trading strategies

A trend-following trading strategy is an approach where traders attempt to profit from identifying and riding the prevailing trends in asset prices. The fundamental idea is that once a trend is established, it is likely to persist for some time, and so traders can seek to profit from this by entering positions in the same direction as the overall trend.

The key principles of a trend-following trading strategies include:

1. Identification of Trends: Use technical indicators to identify the direction of the prevailing trend such as moving averages, trendlines, or other momentum based indicators.

2. Entry Signals: Look for signals that suggest the initiation or continuation of a trend. For example, a common entry signal is when an asset's price crosses above a moving average or when a trendline is broken.

3. Ride the Trend: Once a trend is identified, aim to stay in the trade until there are signs that the trend may be reversing so this may involve holding positions for an extended period to capture the bulk of the price movement in the trending direction.

4. Risk Management: Trend-following strategies must always involve risk management techniques to protect against potential losses. This will include setting a stop-loss order to limit losses in case the trend reverses.

5. No Attempt to Predict Market Turns: Try to avoid trying to predict market reversals or turning points. Instead, focus on using technical indicators to react to identifiable trends and then adjust positions accordingly if necessary.

It's important to note that while trend-following strategies can be profitable in trending markets, they may face challenges in choppy or range-bound markets where trends are not well-defined. Additionally, past performance is not always indicative of future results, and market conditions can change, affecting the effectiveness of trend-following strategies so always paper trade once you have a successful backtest before going live.