Trend Following
Trend following is a trading strategy that attempts to capture gains by riding market trends. Trend followers buy assets making new highs and sell assets making new lows. They don't predict turns; they react to them after they're confirmed.
Understanding the Concept
• "Cut losses short, let winners run" is the core philosophy • Uses moving averages, breakouts, or momentum indicators for signals • Win rate often below 50% but winners are much larger than losers • Struggles during ranging markets, excels in trending markets
Real-World Example
A trend follower enters long when Bitcoin breaks above its 200-day moving average at $45,000. They ride the trend to $70,000, then exit when price closes below the 50-day MA at $58,000. They don't catch the exact top, but they capture the majority of a major move.
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