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Trend following is an investment strategy that tries to take advantage of long-term moves that seem to play out in various markets. The strategy aims to work on the market trend mechanism and take benefit from both sides of the market, enjoying the profits from the ups and downs of the finacial markets. Traders who use this approach can use current market price calculation, moving averages and channel breakouts to determine the general direction of the market and to generate trade signals. Traders who employ a trend following strategy do not aim to forecast or predict specific price levels; they simply jump on the trend and ride it.

This trading method involves a risk management component that uses three elements: number of shares held, the current market price, and current market volatility. An initial risk rule determines position size at time of entry. Exactly how much to buy or sell is based on the size of the trading account and the volatility of the issue. Changes in price may lead to a gradual reduction or an increase of the initial trade. On the other hand, adverse price movements may lead to an exit for the entire trade.

These traders normally enter in the market after the trend properly establishes itself, and, for this reason, they ignore the initial turning point profit.
If there is a turn contrary to the trend, these systems signal a pre-programmed exit or wait until the turn establishes itself as a trend in the opposite direction. In case the system signals an exit,the trader re-enters when the trend re-establishes.

Price: One of the first rules of trend following is that price is the main concern. Traders may use other indicators showing where price may go next or what it should be but as a general rule these should be disregarded. A trader need only be worried about what the market is doing, not what the market might do. The current price and only the price tells you what the market is doing.

Money management: Another decisive factor of trend following is not the timing of the trade or the indicator, but rather the decision of how much to trade over the course of the trend.

Risk control: Cut losses is the rule. This means that during periods of higher market volatility, the trading size is reduced. During losing periods, positions are reduced and trade size is cut back. The main objective is to preserve capital until more positive price trends reappear.


Study this Trading system :

" Stochastic and Emas'cross "

Time frame - Daily.
Indicators -
Stochastic (5,3,3)
6Days exponential moving average.
12 Days exponential moving average.
Buy Setup - Stochastic(5,3,3) should be below 50.
Buy when 2 Days EMA crosses 4 Days EMA from
downside to upside.
Stop loss - Below low of the Entry day but it should not be more than 3 % from your entry price this is my way of using stop loss but you can use stop loss as per your risk appetite but try to maintain Risk:Reward ratio of at  least 1:3.That is if your target is 15 your stop loss should not be more than 5.
Target - Exit when Stochastic(5,3,3) reaches near overbought zone i.e near 80 if you are long.
Exit when Stochastic (5,3,3)reaches near oversold zone i.e. near 20 if you are short.
6 Days and 12 Days emas crossover provides early entry into the trend and stochastic helps to filter out false signals.

see the chart below :

















Happy New Year Traders