Trend Following Strategy
Buy pullbacks in uptrends and sell rallies in downtrends using the 50 and 200 moving averages, with ATR stops and a 2R minimum target.
Educational only. No strategy wins every trade. Backtest and demo-trade any setup before risking real money, and size every position so one loss can't hurt your account. Risk disclaimer
The idea
Trends tend to persist longer than most traders expect. Instead of predicting tops and bottoms, a trend follower waits for a trend to prove itself, then joins it on a pullback.
Setup
- Chart: daily or 4-hour.
- Indicators: 50 and 200 moving averages, 14-period ATR.
Rules
1. Define the trend
Long bias only when the 50 MA is above the 200 MA and both are rising. Short bias only when the 50 is below the 200 and both are falling. Anything else: no trade.
2. Wait for a pullback
In an uptrend, wait for price to pull back to the area between the 20 EMA and the 50 MA. Don't chase price that's already far above the averages.
3. Entry trigger
Enter when a candle closes back in the trend direction after the pullback, for example a bullish close above the prior bar's high.
4. Stop loss
Place the stop 1.5 × ATR below the pullback low (above the high for shorts).
5. Exit
Take half the position off at 2R (twice the risk). Trail the rest under the 50 MA or with a 3 × ATR trailing stop.
Risk management
Risk 0.5–1% of the account per trade. Use the position size calculator with your ATR stop distance.
What to expect
Trend systems typically win less than half their trades. They make money because winners are much larger than losers. Expect losing streaks in sideways markets; the drawdown calculator shows how a streak compounds.
Backtest the rules on your market and timeframe before trading them live. Past behaviour doesn't guarantee future results.
Plan the trade before you take it
Check the reward-to-risk of your setup and size the position so a stop-out costs only what you planned.