Following trends is one of the most powerful practical trading strategies available to you as an individual trader. It is suitable for multiple time frames and multiple markets. In a very real sense, all trading strategies, regardless of time frame, incorporate some aspect of trend-following, except for purely random entry systems.
In my own personal strategy, I use trend tracking in a number of ways:
Weekly I analyze market conditions to determine what percentage of exposure to the markets for the following week I should have. If market conditions allow me to expose money for the next week, I will allocate the appropriate amount of money to the most trending ETF sectors. I will use a trailing stop from the highest high while in the trade to preserve profit and perfect capital.
I defined the strongest of the strong ETFs with a composite measure of the lesson of strength, consistency, and volatility combined into a single metric.
This exit strategy will certainly return some profit, but it is a disciplined way of ensuring that I don’t exit positions too early. He also hopes to see the other side of the hill before selling to preserve profits.
In a longer-term passive asset allocation strategy, I am fully invested in a diverse set of low correlation asset classes as long as the market trend is positive, as defined by the relationship between price and moving average of 200 days. In a sense, this is the next trend related to the general trend of the market. When that trend is negative, defined by a price lower than the 200-day moving average, then I am out of position and completely in cash.
The strategy could incorporate shorting the market once the downtrend on price weakness is established. In my personal strategy, however, I look for gains on the short side in a different way.
In shorter time frame trading strategies, I am looking to capitalize on intraday trading prices in high probability setups to get more rewards than risks in the shortest amount of time.
It’s fair to say that I’m really looking to follow trends across all time frames that I trade.
Michael Covel’s book on trend tracking is the best resource I have found on this topic. I also like Dr. Elders’ triple screen pattern for finding high-probability, high-return opportunities in strong trends.