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Trading Strategies

What Is Trend Following

Trend following is the family of strategies that go the way the price has been going and stay until it stops, reading the direction from a line such as a moving average. This paper shows you a year of gold's daily closes against the 50-day line from real bars, above it on 237 of 258 days in two long stretches, the idea as a ski lift you ride while it climbs, the two stretches on the daily chart, the summer in which the same rule flipped six times in eight weeks, and the line on your platform.

Difficulty
Beginner
Reading time
5 min
Pages
8
Reviewed by
Saman Rahbar

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A year of one rule

Trend following is going the way the price has been going, and staying until it stops. The direction is read from a line. Here is a year of one such reading, from real closes: gold in 2025, each trading day green when the close was above the average of the last fifty closes and red when below. The close was above on 237 of 258 days, in two long stretches, 121 days from 8 January to 26 June and 93 from 22 August to the year's end, with a summer between them in which the reading changed six times in eight weeks.

A ski lift

Picture a ski lift. A trend follower sits on it while it climbs and gets off when it stops climbing; the lift does not ask why the hill goes up, and neither does the rider. The price of the ride is the top. The lift always carries you a little past it before you can tell it has stopped, because you only know the climb has ended after it has. That late step is the cost of the method, and every trend follower pays it on every ride, in exchange for never having to guess where the top will be.

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