Trend following is a reactive trading method. It does not anticipate a move before it happens. It does not forecast or predict future price levels or price movements. It involves a risk management system that uses the current market-driven price direction. Trend trading requires that you have strict discipline to follow precise rules. Trend followers use an initial risk rule that determines the size of their position at the time of entry. This means you know exactly how many shares of stock to buy or sell based on how much money you have. Changes in price may lead to an increase or decrease of your initial trade. Adverse price movements may lead to an exit for your entire trade. This can take place in a week or in a year, depending on the strength of the trend.
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