Trend following strategy explained simply

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In short

Trend following may be the oldest systematic strategy: it does not try to predict where price will go, it follows a move that has already started. A common signal is the cross of two moving averages.

The target is open. A trailing stop decides when a trade ends. Wins come from a few long moves, losses from many short false signals in between.

The strategy as a schematic

A drawn price path, no market data. First the case where the rule works, then the same routine when it fails.

Closed: ±0 pips
Open: –
Open volume: –

Schematic, no market data: a drawn price path, results in pips weighted to 0.10 lots. Not a backtest and no statement about any real EA.

How the strategy trades

Calculate two moving averages, a fast one (e.g. 8 candles) and a slow one (e.g. 21 candles).
When the fast one crosses the slow one upwards: buy. Downwards: sell.
Every position gets an initial stop.
While the trade runs, the stop follows at a fixed distance (trailing stop) and locks in part of the move.
On the opposite signal the position is closed and, if set, reversed.

Where the risk sits

Every trade has a stop, so the risk per position is capped. The real risk is frequency: in sideways phases the averages cross again and again, and every cross costs a small loss.

Trend following lives on a few large wins that pay for many small losses. The hit rate is often well below 50 percent. Long phases without a trend mean long phases with a falling curve.

The trailing stop gives back part of the move at every turn. That is intended, but it feels like giving away profit.

When it works, when it fails

Tends to work when …

The market moves in one direction over many candles, with small pullbacks.
The signals are slow enough not to react to every wiggle.
Several markets are traded, so a trend is running somewhere.

Tends to fail when …

Sideways phases: many crosses, many small stops in a row.
A sudden reversal after a long trend, before the stop has caught up.
Settings that are too fast and react to every bit of noise.

How to recognise it in an EA

Traces in the trade log of a live account, whatever the vendor calls the EA.

Low hit rate, but the average win is clearly larger than the average loss.
Holding times from hours to weeks; the biggest winners are also the longest trades.
Usually one position per symbol, direction flips right after a close.
Stop values in the trade log change during the trade (trailing).

Typical settings

Setting	Typical	Effect
Fast average	5–20 candles	Shorter = earlier, but more false signals.
Slow average	20–100 candles	Defines what counts as a trend.
Initial stop	fixed distance or ATR multiple	Risk per trade.
Trailing distance	1–3× ATR	Tighter = locks in earlier, exits more often.
Timeframe	H1 to D1	Higher timeframes = fewer trades, longer holds.

Common ranges from EA manuals and set files, not a recommendation.

EAs in our tests built this way

43 graded EAs from our tests carry this design. Grade on a 0 to 10 scale, one formula for all; no live figures.

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Frequently asked questions

Why does a trend following strategy have so many losing trades?

Because it enters at every cross without knowing whether a trend will follow. Most crosses are noise and end at the stop. The strategy counts on a few trends becoming large enough to make up for those losses.

Is trend following suitable for beginners?

The rules are simple and every trade has a stop. The hard part is sitting through long losing phases without interfering. Changing the settings after five stops means no longer trading the same strategy.

Which timeframe is common for trend following?

Mostly H1 to D1. On very short timeframes noise and costs dominate and the number of false signals rises sharply.

Video: the strategy in under a minute

The same animation as a video with subtitles, for those who prefer to watch.

Trend following explained simply