One common strategy for trading is to follow a trend. The basic approach is to establish a methodology to identify a trend, decide how to enter it, and then ride the trend as long as possible.
Many technical analysis tools are available to identify trends. These include ADX (see separate article on this), trendlines and moving averages, as well as the more obvious visual inspection. The classic distinguishing features of an uptrend are higher highs and higher lows, of a downtrend lower highs and lower lows.
There are two main choices for entering a trend once indentified, and the one chosen will depend on the style and preferences of the trader. One choice is to enter on a breakout of some kind, catching a new trend in its early stages, the other is to wait for a pullback once the trend is already established. There are advantages and disadvantages in both techniques. Entering on breakouts risks that the breakout turns out to be false, but when it is successful more of the move can be captured. Entering on pullbacks captures less of the move (by definition some of it has already occurred), and also risks that the pullback is in fact the start of a significant correction rather than just a short break in the trend; on the other hand the trend is already proven, and risk can be accurately defined with clear stop points.
How much of the trend can be ridden once entered depends on the quality of exit technique employed. Usually some kind of trailing stop is employed, which needs to be not too close (otherwise it will be triggered by random noise) and not too far (otherwise too much profit will be given up). The ideal trailing stop will be triggered when a signicant correction to the trend begins.
