🎯 What Is Trend Trading?
Trend trading means identifying the prevailing market direction (uptrend or downtrend) and trading in the same direction.
> “The trend is your friend.”
🛠️ Core Elements of a Trend Trading Strategy
Below is a step-by-step outline you can adapt to stocks, forex, crypto, or futures.
1️⃣ Identify the Trend
Use tools to define whether the market is trending:
Moving Averages
50-day and 200-day moving averages: If price > moving average = uptrend.
Golden Cross: 50-day crosses above 200-day = bullish.
Death Cross: 50-day crosses below 200-day = bearish.
Trendlines
Draw lines connecting higher lows (uptrend) or lower highs (downtrend).
Price Action
Higher highs & higher lows = uptrend.
Lower highs & lower lows = downtrend.
2️⃣ Confirm with Indicators
Add confluence to avoid false signals:
MACD (Moving Average Convergence Divergence)
Above 0: bullish momentum.
Below 0: bearish momentum.
RSI (Relative Strength Index)
40–60: trending.
Overbought (>70) or oversold (<30): possible reversal or pause.
ADX (Average Directional Index)
ADX > 25 indicates a strong trend.
3️⃣ Define Entry Rules
Examples:
Enter long when price closes above the 50-day MA and MACD confirms bullish.
Enter short when price breaks a key support and ADX shows strong trend.
4️⃣ Set Stop-Loss and Take-Profit
Stop-Loss: below the most recent swing low (uptrend) or above swing high (downtrend).
Trailing Stop: to lock in profits as price moves in your favor.
Take-Profit: consider key resistance/support, or use risk/reward ratio (e.g., 1:2).
5️⃣ Position Sizing
Risk only a fixed % of capital per trade (e.g., 1–2%).
Adjust position size based on volatility.
6️⃣ Exit Strategy
Exit when:
Trend reversal signals (moving average cross in the opposite direction).
Price hits your trailing stop.
Indicator divergence appears.
🧠 Example Simple Strategy
Moving Average Crossover Trend Strategy:
Buy when 50-day MA crosses above 200-day MA.
Sell when 50-day MA crosses below 200-day MA.
Stop-loss: recent swing low.
Take-profit: trailing stop or key resistance.
📊 Advantages
✅ Clear rules.
✅ Captures big moves.
✅ Works in strongly trending markets.
⚠️ Risks
❌ Whipsaws in sideways markets.
❌ Late entries and exits.
❌ Requires discipline.