Trend following 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 trend following except for purely random entry systems.
In my own personal strategy I employ trend following in several ways:
On a weekly basis I analyze market conditions to determine what percent exposure to the markets for the following week I should have. If market conditions permit me to expose money for the week ahead, I will then allocate the appropriate amount of money into the strongest trending ETF sectors. I will use a trailing stop from the highest high while in the trade in order to preserve profits and perfect capital.
I defined the strongest of the strong ETF’s with a composite measurement of strength, consistency and volatility lesson blended into a single metric.
This exit strategy will certainly give back some profits but is a disciplined way of ensuring that I don’t exit positions too soon. It also waits to see the far side of the hill before it sells 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 the 200 day moving average. In a sense, this is trend following related to the markets overall trend. When that trend is negative, defined by price less than 200 day moving average, then I am out of a position and fully in cash.
The strategy could incorporate going short the market once the bearish trend is established on price weakness. In my personal strategy, however, I go after profits on the short side in a different manner.
In the shortest time frames strategies for trading, I am looking to capitalize on intraday trading prices in high probability setups in order to make more reward than risk in the shortest possible time.
It is fair to say that I am really looking to trend follow in all time frames that I trade.
Michael Covel’s book on trend following is the best single resource I have found on this topic. I also like Dr. Elders triple screen pattern to find high probability, high payoff opportunities in strong trends.