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.
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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