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Overview
Trend following is one of the oldest and most rigorously tested systematic trading approaches. Its core principle is simple: identify an established trend and trade in its direction until evidence of reversal emerges. The philosophy is captured in the adage "the trend is your friend β until it ends."
The strategy is inherently reactive β it does not predict where price will go, only identifies which direction it is currently moving and positions accordingly. Trend followers accept that they will miss the beginning and end of every trend but seek to capture the substantial middle portion.
Entry signals are typically generated by breakouts of recent highs or lows, moving average crossovers, or Donchian channel breakouts. Position sizing often uses ATR-based volatility targeting: larger positions in low-volatility environments, smaller ones when volatility spikes, so that every trade represents a roughly equal risk. Exits are governed by trailing stops rather than fixed profit targets β the position rides as long as the trend continues.
The strategy performs best in strongly trending markets (commodities, currencies, crypto during bull runs) and struggles in range-bound or mean-reverting environments. Diversification across many uncorrelated markets is the standard approach to smooth the inevitable drawdown periods.
Strategy Code
This is a TradingView Pine Script strategy example for this page concept. Paste it into the TradingView Pine Editor, add it to your chart, and run it in the Strategy Tester.
//@version=6
strategy("Trend Following Strategy", overlay=true)
adxLen = input.int(14, "ADX Length")
emaLen = input.int(100, "Trend EMA")
adx = ta.adx(adxLen)This is a thinkorswim ThinkScript strategy example for this page concept. Open thinkorswim, create a custom strategy, paste the script, and apply it to your chart.
input adxLength = 14;
input emaLength = 100;
def adxVal = ADX(adxLength);
def emaVal = ExpAverage(close, emaLength);
def buySignal = close > emaVal and adxVal > 25;Join thousands of traders who use auto-Trading to execute this strategy automatically, 24/7.
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