Definition
Trend following is a trading approach built on a simple premise: rather than predicting where price will turn, the trader identifies the direction price is already moving and trades with it. Buy when the trend is up, sell or stand aside when it is down, and stay in the trade until the trend clearly ends.
It is a reactive rather than predictive discipline. The trend follower does not try to catch the exact top or bottom; the aim is to capture the large middle portion of a sustained move and accept giving up the extremes.
Why it matters
How it works
The trend follower uses tools such as moving averages, trendlines, and breakouts to define the prevailing direction. An entry is triggered when price confirms a trend, for example by breaking to a new high, and a stop is set to exit if the trend reverses.
The position is held as long as the trend persists, with the stop trailed behind price to lock in gains. The strategy accepts frequent small losses during sideways markets because a single sustained trend can outweigh many of them. Discipline, letting winners run and cutting losers, is its core requirement.