When you hear of trading strategies they are mostly known by their method of entry. The entry is the star of the show however with Trend Following, it is only one small part of the system. The entry is a trigger of when your system gets into a market. This does not mean the trend is guaranteed but the conditions exist that you have chosen to indicate a trend or the beginning of a trend. Trend Following does not predict but if a market starts to trend, you take a position. If it continues to trend, you stay with the position. If the trend breaks down, you get out of the position. Depending on your trading style, you can choose entries all the way from suspecting the beginning of a trend to only entering when a trend is more established.
Since you do not know when a trend starts or how long it will last until it is already over, you need a high probability trigger to show you when to get in.
As the price movement is the reality in your system, use an indicator or combination of indicators that support this.
In addition to using an indicator, let the price action confirm the direction your indicators are suggesting before you enter the market especially if your indicator lags the price.
- Price making new highs or lows as seen using Price or Donchian channels
- Price crossing above or below a single moving average
- Moving average crosses including double or triple/quadruple for additional filtering
- Breakouts of channels or envelopes made from ATR , Moving Averages
- Bollinger Bands including %B and BandWidth
- ADX level or using ADX to confirm another indicator
- RSI, MACD, Stochastics and more - see the Chart School on StockCharts.com
- Technical Traders Guide to Computer Analysis by Charles LeBeau and David Lucas
- New Trading Systems and Methods by Perry Kaufman
Some systems may benefit from Pyramiding. If the price moves favorably to your position, you have a trigger to add another position and move your stop. Pyramiding can increase your gains and protect profits as the stop moves closer with each additional position. If your system benefits from Pyramiding, it will increase the size of your wins when they find a good trend.
More important than when to enter the market is the question of how much to buy or how big of a position to take. The next page is about position sizing.