What Is Trend Following? How the Strategy Works, and Why It Feels Wrong Most of the Time

Want the daily routine? Get the free 15-Minute Swing Trader’s Checklist. Get it free →

Last updated: 16 October 2026 · By Spencer Li, CFTe

---

Trend following is a trading strategy that buys markets already moving up, sells or avoids markets already moving down, and holds each position for as long as the trend lasts. It makes no forecast. It waits for a move to show itself, joins it late, and leaves late, after the move has ended.

That lateness is the price of the whole approach. Trend followers lose a lot of small trades in markets that go nowhere, and they rely on a few large moves to pay for all of them. When I ran a simple, public trend rule on 2 markets over 26 years, it lost on about half its trades, and its 5 biggest winners out of 120 trades produced nearly 30% of all the gains.

So the strategy is simple to describe and hard to live with. In this post, I’ll walk you through how it works, the evidence behind it, and why it feels wrong most of the time.

What does trend following actually do?

Think of it as surfing rather than weather forecasting. A surfer cannot make a wave and does not try to predict the next one. He waits, paddles when one forms, rides it as far as it goes, and paddles back out.

A trend follower does 3 things in that order.

1. Spots a trend. Price is making higher highs and higher lows, it has broken to a new high, or it sits above a rising moving average. Our post on market structure shows the first method, and our post on trend-following indicators covers the others.
2. Joins it. Either on a break to a new high, or on a pullback inside the trend. Both are common, and each has its own failure mode.
3. Exits when the trend ends. Usually on a break of structure, a trailing stop, or a crossover back the other way. The exit is designed to give back part of the move, which is the cost of never knowing where the top is.

In our guide to trading strategies, this is the setup type we call Swing: join an established trend and ride it. It needs one thing from the market above all, a clear trend, and it fails when the market chops sideways.

Does trend following work?

There is more evidence for this family than for almost any other. In 2017, Brian Hurst, Yao Hua Ooi and Lasse Pedersen published a study in the Journal of Portfolio Management that rebuilt a simple trend strategy across many markets back to 1880. They found it “was consistently profitable over the next 110 years”.

That is a remarkable record, and it deserves 2 honest footnotes. It is a historical study, and past results do not promise future ones. And “consistently profitable over 110 years” still includes long, painful stretches inside those years, which is exactly what makes the strategy hard to follow.

I wanted to see the shape for myself, so I ran the classic public channel rule on 2 markets. Buy when the daily close breaks above the highest high of the past 50 days, and sell when it closes below the lowest low of the past 20 days. I used the S&P 500 index and gold, from 2000 to 2025.

[INFOGRAPHIC: 120 trades as a row of thin bars, most of them short and red or green, with 5 tall green bars highlighted and labelled “29% of the gains”]

Half the trades lost. The ones that won were bigger than the ones that lost. And a handful of very large winners carried a big share of the result. That is the trend-following profile in one table, and it is also why missing a few of those big trends is so costly.

Do note this is a simple rule on 2 markets, run to show the shape, and nothing more. It is not a system I am suggesting you trade.

Why does trend following feel wrong most of the time?

Because it asks you to do 3 uncomfortable things, over and over. I call them the 3 costs of trend following.

1. Late in. You buy after the move has started, at a higher price than the people who bought the bottom. It feels like chasing.
2. Chopped up. In a sideways market, the trend signals fire and fail, fire and fail. Each loss is small, and they pile up.
3. Give-back. When a trend ends, you exit after it has already turned, so you hand back part of the open profit. It feels like watching money leave.

None of these is a flaw in the method. They are the method. A trend follower who tries to remove the lateness by buying earlier has become a reversal trader, with a different set of problems.

How long are the losing streaks?

Longer than most people expect. I simulated 2 hypothetical trend-style strategies, each over 200 trades and 100,000 runs, and measured the longest run of consecutive losses.

R is the amount you risk on one trade. Both strategies make money on average. Both will hand you 9 or 10 losses in a row at some point, as a matter of routine arithmetic.

This is where most trend followers quit. Not in the middle of a disaster, but in the middle of an ordinary losing streak, a few weeks before the next big trend arrives. The arithmetic behind that is in our post on win rate versus risk reward, and the honest way to tell a streak from a broken strategy is in skill or luck.

If you want a routine that keeps you consistent through the boring part, the 15-minute version I run after the close is in the free checklist at the end of this post.

What does this look like in a real trading record?

My own public trade log is a mix of setups, and it shows the same shape. As of 16 October 2026 it holds 484 closed trades. About 51% of them won, and the average winner was a little over 3 times the size of the average loser. I lose on roughly half my trades, and the account is carried by the size of the winners. You can read every one of them, losses included, on the trade log page.

Personally, I think that is the most useful thing a beginner can see. Being wrong half the time is normal in this family. Cutting the losers small and letting the winners run is what does the work.

How is trend following different from mean reversion?

They are opposites. Trend following bets that a move will continue. Mean reversion bets that a stretched move will snap back.

Many traders use both, matched to the market. When the market is trending, they join it. When it is stuck in a range, they look at the edges or at breakouts. When it is just messy, they trade less, which is the subject of how to trade a choppy market.

Which tools do trend followers use?

Fewer than you would think. A moving average or two to judge direction, covered in moving average crossover strategies. A channel of recent highs and lows, like the Donchian channel behind the rule above. And an exit that follows price up, such as a trailing stop.

The tool matters less than the rules around it: how big each position is, where you are proven wrong, and the patience to sit through the streaks.

Trend following asks you to buy high and sell higher, which goes against every instinct a bargain hunter has. The people who manage it are rarely the smartest in the room. They are the ones who can stay late, wrong half the time, and still there when the big trend finally comes.

FAQ

What is trend following in trading?

It is a strategy that joins a market already moving in one direction and holds until the move ends. It does not predict turns, and it accepts getting in late and out late in exchange for catching the large moves.

Does trend following still work?

A 2017 study in the Journal of Portfolio Management rebuilt a trend strategy back to 1880 and found it consistently profitable over the next 110 years. That is history, and past results do not guarantee future ones.

What is the win rate of trend following?

Often around half or lower. A simple channel rule on the S&P 500 and gold from 2000 to 2025 won about 49% of its trades, and relied on its winners being larger than its losers.

Why do trend followers lose so often?

Because markets spend long periods going sideways, and every trend signal in a sideways market tends to fail. The small losses from those signals are the cost of being in the trends that do run.

Is swing trading the same as trend following?

Not exactly. Swing trading describes a holding period of days to weeks. Trend following describes what you bet on. Many swing traders follow trends, and at Synapse Trading we call that setup type Swing.

Go deeper

The free 15-Minute Swing Trader’s Checklist has the daily routine, the questions to ask before every trade, and the five rules that keep you in the game. Enter your email and we’ll send it over:

We use your email address to send you the checklist, then emails about trading and our courses. Unsubscribe any time. Privacy policy.

---

About the author. Spencer Li is the founder of Synapse Trading and a Certified Financial Technician (CFTe). His trade log is public: every trade since April 2024, dated, losses left in.

Educational content only, not personalised financial advice. Trading carries risk, including loss of capital. Past performance is not indicative of future results. Synapse Trading is not licensed or regulated by MAS.

Want the daily routine? Enter your email for the free 15-Minute Swing Trader's Checklist.

Free 5-page PDF, then occasional trading emails. Education only, not financial advice. Unsubscribe anytime. Kit stores your email in the US: see our privacy policy.

Want to learn the full method? The Trading Mastery Program teaches the 4 strategies I have traded since 2011. It suits beginners and experienced traders.

Rather follow the trades as they happen? Daily Trading Signals is our Telegram channel: my trade ideas with entry, stop and exit, and every trade is public.

Educational content only, not personalised financial advice. Trading carries risk, including loss of capital. Past performance is not indicative of future results. Synapse Trading is not licensed or regulated by MAS.