Trend Following in Forex: A Beginner’s Guide with Real Examples
If you’re just stepping into the world of Forex trading, one of the most approachable and widely used strategies you’ll come across is Trend Following. It’s simple in theory, effective in practice, and doesn’t require predicting the future—only reacting to what the market is already doing.
In this post, we’ll explore what Trend Following is, how it works, and walk through a few real-world examples to help you understand how to apply it in your own trading.
What Is Trend Following?
Trend Following is a trading strategy that attempts to capture gains by riding an existing market trend. It’s based on the idea that markets often move in long, sustained trends—either upward (bullish) or downward (bearish).
Instead of trying to predict tops and bottoms, trend followers look to buy when the market is trending upward and sell (or short) when the market is trending downward. The core philosophy: “The trend is your friend.”
Key Tools Used in Trend Following
While there are many tools and indicators out there, beginner trend followers typically use:
- Moving Averages (MAs):
- Simple Moving Average (SMA) or Exponential Moving Average (EMA) are used to identify trend direction.
- A common setup: 50-period and 200-period MAs.
- Trendlines and Channels:
- Drawing lines connecting higher lows in an uptrend or lower highs in a downtrend helps visualize the trend.
- Price Action:
- Higher highs and higher lows = Uptrend.
- Lower highs and lower lows = Downtrend.
- Breakouts:
- Trend followers often enter trades when price breaks above resistance or below support.
Basic Trend Following Strategy
Here’s a simple rule-based trend following setup for beginners:
- Identify the trend direction using a 200-period SMA:
- If price is above the SMA → look for buy trades.
- If price is below the SMA → look for sell trades.
- Use a 50-period SMA for shorter-term confirmation.
- Enter when the shorter MA crosses above (for buy) or below (for sell) the longer one.
- Place a stop-loss just below the recent swing low (in an uptrend) or swing high (in a downtrend).
- Let the trade ride until the trend changes or hits your profit target.
Example 1: EUR/USD Uptrend
Let’s say the EUR/USD pair has been trading above the 200-period SMA on the 1-hour chart. You notice:
- The 50-period SMA just crossed above the 200-period SMA (a bullish signal).
- Price breaks out above a recent resistance level at 1.0800.
- You enter a long (buy) trade at 1.0820.
- Your stop-loss is placed at 1.0775 (below the last swing low).
- Your profit target is at 1.0920 (a previous resistance zone).
Over the next few hours, the EUR/USD climbs steadily. The trend holds, and you hit your target with a +100 pip gain.
Example 2: USD/JPY Downtrend
Looking at USD/JPY, the price is trading below the 200-period SMA on the 4-hour chart.
- The 50-period SMA has recently crossed below the 200-period SMA.
- Price breaks below a key support at 148.00.
- You enter a short trade at 147.80.
- Stop-loss at 148.50 (just above the breakout level).
- Target set at 146.00, a previous support area.
The downtrend continues, and within a couple of days, the pair hits your profit target.
Pros and Cons of Trend Following
Pros:
- Simple and easy to understand.
- Works well in strong trending markets.
- Can deliver large profits from long trends.
Cons:
- Doesn’t work well in sideways or choppy markets.
- Whipsaws (false breakouts) can occur.
- Requires patience and discipline.
Tips for Beginner Trend Followers
- Stick to higher time frames (1H, 4H, or daily) to reduce noise.
- Don’t chase trends—wait for clear setups.
- Use risk management: Never risk more than 1-2% of your trading capital on a single trade.
- Journal your trades to learn from your wins and losses.
Final Thoughts
Trend following is a time-tested strategy that’s ideal for beginner Forex traders. It teaches you to go with the market rather than against it. By identifying trends, waiting for confirmation, and managing risk properly, you can build a solid foundation for your trading career.
Ready to give it a shot? Open a demo account, apply these principles, and start practicing spotting trends today.