Trend following – an investment strategy, based on technical analyses of market prices, rather than fundamental activities. Trend is a tendency of rate of exchange to drive on to definite direction for a reasonably long time.
There are many different methods, estimations and time frames to use for identification general trend and generation market signals, for example moving averages or canal gap. Traders used trend following are usually distinguish because of different methods and time frames.
Let us see
one of possible strategy in example:
https://charts.mql5.com/8/728/eurusd-h12-metaquotes-software-corp.png
Method of analysis (indicators):
Indicator 6 – crossing 0-line (+ trend up, - trend down)
Indicator 3 – turning indicator’s line
Signal “open” : all indicators conjunct
Signal “close”: indicator 3 turns compared to trend
Main rules of this strategy:
1. We guess, that when indicator 3 turns compared to trend that means weakening of trend. Signal “open” is forbidden.
2. Rule 1 diminishes frequency of signals, but make the strategy more effective.
3. Main time frame is based on testing (in our example, H12).
4. Main mistake – signal “open” in the end of trend. Indicator 3 used to avoid it.
P.S. We described one of the variant of trend following strategy. It may be improved in different ways. But even such a simple example demonstrates effectiveness of such strategies.
To see trade signals in this strategy – in enclosure.
