Trend following strategies

Trend Following Strategies: A Beginner's Guide

Welcome to the world of cryptocurrency trading! This guide will introduce you to trend following, a popular strategy used by traders of all levels. We'll break down what it is, how it works, and how you can start using it. This guide assumes you have a basic understanding of what Cryptocurrency is and how to use a Cryptocurrency Exchange like Register now, Start trading or Join BingX.

What is Trend Following?

Imagine you're watching a snowball roll down a hill. It starts small, but as it rolls, it gathers more snow and gets bigger, moving in one direction. Trend following in crypto is similar. It’s based on the idea that if the price of a cryptocurrency is moving in a specific direction (up or down), it’s likely to *continue* moving in that direction for a while.

Instead of trying to predict *when* the trend will end, trend followers aim to identify an existing trend and profit from it. It’s a reactive strategy, not a predictive one. You're hopping *onto* a moving train, not trying to build a new one.

Why Use Trend Following?

**Simplicity:** It's relatively easy to understand and implement, even for beginners.
**Potentially High Rewards:** Strong trends can lead to substantial profits.
**Reduced Emotional Trading:** Rules-based strategies like trend following help minimize impulsive decisions based on fear or greed.
**Works in Various Markets:** Trend following isn't limited to crypto; it's used in stock trading, forex, and commodities.

Key Concepts

**Uptrend:** A series of higher highs and higher lows. The price is generally increasing.
**Downtrend:** A series of lower highs and lower lows. The price is generally decreasing.
**Support:** A price level where buying pressure tends to overcome selling pressure, preventing the price from falling further.
**Resistance:** A price level where selling pressure tends to overcome buying pressure, preventing the price from rising further.
**Breakout:** When the price moves above a resistance level (in an uptrend) or below a support level (in a downtrend). This often signals the trend is continuing.
**Timeframe:** The period you are looking at the price chart (e.g., 15 minutes, 1 hour, 1 day). Longer timeframes generally indicate stronger trends.
**Moving Averages:** A [moving average](https://www.investopedia.com/terms/m/movingaverage.asp) is a calculation that averages a cryptocurrency’s price over a specific period. They help smooth out price data and identify trends.

How to Identify Trends

1. **Visual Inspection:** Look at a price chart. Are there consistently higher highs and higher lows? That’s an uptrend. Are there consistently lower highs and lower lows? That’s a downtrend. 2. **Moving Averages:** Use moving averages to help confirm trends.

   *   If the price is consistently *above* the moving average, it suggests an uptrend.
   *   If the price is consistently *below* the moving average, it suggests a downtrend.
   *   Common moving average periods are 50-day, 100-day, and 200-day.

3. **Trendlines:** Draw lines connecting a series of highs (in a downtrend) or lows (in an uptrend). A break of the trendline can signal a trend reversal.