Trend Following: How to Ride Waves Without Getting Washed Out

Markets move in waves. Easy, right? But if you’ve tried catching one only to find out you get washed out, you’ve realized it ain’t’ that easy.

Sometimes there are gentle ripples that lull traders into boredom, other times they’re tsunamis that wipe out everything in sight.

The trick isn’t predicting when the next big set will hit – it’s learning how to catch it without falling off your board from the get-go. That’s where trend following comes in. Simple, structured, and surprisingly effective, it’s a strategy that says: stop guessing, start riding.

🌊 Catching It, Not Fighting It

At its core, trend following is about spotting momentum and sticking with it. If prices are climbing, you’re a buyer. If they’re falling, you’re a seller. No need to argue with the market about “fair value.” The trend follower’s mantra is: Mr. Market is always right, I’m just here to hitch a ride.

Why does this work? Because markets are essentially a bunch of thinking participants who move in herds. They share the same fears, hopes, expectations, and goals.

Traders, funds, and algorithms pile into the same ideas, technical patterns, and price levels, pushing valuations higher or lower. Your job isn’t to outsmart the herd – it’s to ride with it until the stampede loses steam.

Or better yet, spot the opportunity before the herd. "I am the animal at the head of the pack. I either get eaten, or I get the good grass,” says David Tepper, hedge fund manager.

🤫 Why It’s Harder Than It Sounds

“Buy high, sell higher” feels wrong anywhere but in the market. Human brains are usually wired to hunt for bargains, not chase expensive things. But there’s something about a record high that pulls you in and makes you say “Take my money!”

Traders love to bet on success. So when they see that Bitcoin BTCUSD is at $117,000, near a record, it’s easier to throw cash than when it’s crashing and burning at a 60% discount.

True, no trend stays intact after a huge drop. But sometimes it’s better to see confirmation that the trend is exhausted than to exit during a mild dip and risk missing out on the big move.

Trend following isn’t about catching every top or bottom. It’s about accepting that you’ll never time it perfectly, but if you stay disciplined and let the trend play out, you’ll capture at least some of the move.

But in trading everything’s possible – some prefer to catch tops and bottoms, and that’s completely fine as long as it works.

“For twelve years I have been missing the meat in the middle but I have made a lot of money at tops and bottoms,” says Paul Tudor Jones, another big name in the industry.

📈 Tools of the Trade

So how do you know a trend is worth following? Traders lean on a few classics:

• Moving averages: If the 50-day is above the 200-day, that’s your green light. Prices above both? Bullish trend intact. Prices dive below the 200-day? Cue that a bear market is here.

• Support and resistance: Connect the dots (literally) and see if the price is respecting an upward or downward slope.

• Breakouts: When the price pops above resistance or drops below support on big volume, that’s the market saying, “Watch this.”

• Reversals: For those that like to live on the edge, spotting reversals might be a good way to catch a move from start to finish.

The trick isn’t in the tool itself, but in sticking to the plan when the inevitable wiggles and pullbacks happen.

🚤 Don’t Mistake Chop for Trend

Not every chart with bars pointing up is a trend. Sometimes you’re just looking at chop – those sideways, back-and-forth price moves that exist to chew up stop-losses and ruin Fridays.

Trend followers learn to wait for confirmation. That could mean a clean breakout with volume, or a moving average crossover with conviction. Enter too early, and you may find yourself drowning in false signals.

A confirmation is oftentimes triggered by economic news and reports. So pay attention to big and small releases stacked in the Economic Calendar.

🛟 The Stop-Loss Lifeboat

Here’s a little secret of trend following: you’ll be wrong a lot. The method is built around small losses and (occasional) big wins. That’s why stop-losses are essential. You’re not trying to win every trade, you’re trying to catch the few monster trends that more than pay for the slip-ups.

Think of it like surfing: you’ll get wiped out plenty of times, but you only need one clean wave to make the day worthwhile.

📊 The Math Behind the Swings

Why does this work over time? Because of asymmetric returns. If you risk $1 to make $3, you only need to be right 30% of the time to profit. Trend followers build systems where the losers are cut quickly, but the winners are allowed to run. That’s where the proper risk-reward ratio comes in.

Most traders do the opposite. They cut winners too early (“I’ll take my quick profit!”) and let losers drag on (“It’ll bounce, right?”).

🧩 Famous Trend Followers

This isn’t just theory. The Turtle Traders in the 1980s—an experiment by Richard Dennis and William Eckhardt—proved that complete novices could learn a rules-based trend following system and make millions. Fast forward, and big CTAs (Commodity Trading Advisors) still run billions using similar strategies today.

They all share one principle: don’t predict, only follow.

⏳ Patience Pays

The hardest part isn’t identifying trends. It’s sticking with them. Every pullback will tempt you to bail. Every analyst estimate, every scary headline, even your cousin at Thanksgiving telling you “Ether’s going to zero” will test your patience.

But trends don’t end because you got nervous. They end when the move breaks. Patience is what separates the trend followers who catch the big wave from the ones stuck paddling.

🎯 Final Take: Ride It Out

Trend following may not make you look like Paul Tudor Jones calling tops and bottoms. But it will keep you aligned with where the money is flowing. And when you’re on the right side of a trend, the ride is smoother, the wins are bigger, and the stress is lower.

Off to you: When’s the last time you got a nice wave and surfed it out to completion? Share your experience in the comments!