3 Rules for a Successful Trend Following Strategy


The trend following strategy is a famous trading strategy that also abides by a list of rules. Here are some of the most important rules you need to remember to help guide you towards a successful trend following strategy.

Hand arranges the letters to form the word RULES

1. Don’t Just Rely on What You Read or Hear on the News, Learn to Read the Charts
It’s imperative that, as a trader, you learn how to properly read the charts and make decisions that will help you progress in the field of trading. You also need to learn how it is to trust that the price and price patterns are actually accurate when it comes to reflecting the underlying fundamentals. After all, sustained price movement would not be possible if it were not for the support provided by economics.

However, there are large amount of information circulating the internet nowadays. With this, it can be quite easy to find “proof” or a logical explanation as to what every single movement of the market – big or small – might actually mean.

The reasons why large traders or funds choose to enter or exit the trades are mostly kept to themselves. Despite this, these traders will often second guess their own decisions.

You don’t necessarily need to read too much into every single analysis or intraday price reactions that are related to the short-term news releases.

2. Learn to Set it and Leave it
No amount of advice can completely prepare traders to fight off the temptation of making an early exit on your trades, or on the other hand, ignoring money-management rules in order to maximize your profits. It’s important to remember that no matter how prepared you might think you are, there is and will always be room to learn, grow, and improve.

One of the hardest things you would most likely learn in trading is the fact that you should let a profit run its own course. Once you decide to enter a trade, set your stop loss and try to push the trade towards the back of your mind as much as you can.

Don’t overthink too much especially after settling your trade. You don’t have to stress yourself out with thinking that you ended up overlooking something. You should also stop yourself from researching articles that will support your theory. Most importantly, prevent yourself from checking the trade every few minutes.

3. Buy Dips during Uptrends and Sell Rallies during Downtrends
This is basically the golden rule of trading and serves to be the first thing that every investor learns on a trading floor. No matter how strong the trend may seem, there will always be intraday or intraweek countertrend reactions that are bound to provide opportunities for smart traders.  Most of the time, the countertrend movements are influenced by news that contradict the dominant pattern or trend.

Final Thoughts

The trend trading strategy is not that hard to understand, especially if you keep these rules in mind. Rules are set for a reason, and in this case, it’s to help you navigate the financial market as best as you can while using the trend trading strategy.

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