Trend Following Philosophy

The philosophy of trend following trading is to buy stocks that are in an uptrend and sell them when the trend finishes. To do this we need a definition of trend to firstly identify stocks that are going up and to also identify when the stocks are no longer going up and hence will need to be sold. Trend following systems generally have a trailing stop that moves up behind the price as it rises. It is not uncommon for the trailing stop to be quite large which means the stock needs to drop a long way before you exit it. This is the way that the system is able to keep you in a long, sustained up trend and ride out the short term dips in price.