Many friends enjoy chasing trends and cutting losses in trading, chasing long positions when the market rises, and short positions when it falls, following the market based on feelings, which results in severe losses from frequent trading.

So in the trading industry, many people believe that chasing trends and cutting losses is the most undesirable and harmful approach.

However, in my opinion, the logic of chasing trends and cutting losses is quite in line with human nature and there is no major issue with it. As long as some adjustments are made in the strategy, it is also possible to achieve profits.

We all say that trading should go with the trend, not only the "trend" of the market but also the "trend" of our human nature. In today's article, I will discuss the basic logic of chasing trends and cutting losses and share 4 trading methods under this logic for your reference.

The article is relatively long, so you can bookmark it for reading. If you find it helpful, you can give the article a like, thank you.

1. What is the basic logic of chasing trends and cutting losses?

How should it be correctly understood?

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The logic of chasing trends and cutting losses itself is not wrong. Think about it, the basic logic of trend-following trading is: after the market confirms the direction, enter the market in the direction of the trend. When the market rises and confirms a bullish position, and when it falls and confirms a bearish position, isn't this also chasing trends and cutting losses?

Moreover, the trading method of chasing trends and cutting losses is to enter the market after the trend is established and the market breaks through. For example, after the market has experienced a long period of consolidation and then breaks through, this is often the stage of explosion. Chasing in at this time means the market moves quickly and has a large operating space, which is the most comfortable stage for trading.

We usually think that chasing trends and cutting losses is wrong because we have all experienced losses from doing so, especially during the novice stage, when we are particularly fond of closely monitoring trades. Our skills may not be great, but we love trading.At that time, there might not have been any systematic trading methods, so people just followed the market trends and released their human desires, blindly chasing rising prices and selling off, resulting in huge losses. Then they blamed the losses on the act of chasing rises and selling off.

In fact, the mistake was not in the logic of chasing rises and selling off, but in the lack of a method, the lack of execution, and the inability to use the logic of chasing rises and selling off to form a trading system for scientific trading.

So, how can we use the logic of chasing rises and selling off to trade correctly? Next, I will discuss 4 methods to give everyone a more systematic way of thinking.

2. Four trading methods for chasing rises and selling off

Method 1: Breakout chasing rises and selling off.

Entering the market after a pattern breaks is the most commonly used trading model for chasing rises and selling off, and the continuation pattern is the most ideal trading pattern.

In front of the continuation pattern, the trend is clear, and during the pattern consolidation process, the market accumulates strength. After the pattern breaks, the market will enter an explosive phase, which is a good trading opportunity.

The chart is a 1-hour chart of spot gold.

After the market went through a double bottom consolidation and broke through at the bottom, the bullish trend was confirmed. After the first wave of the bull market, an ascending triangle continuation consolidation was formed. In the consolidation pattern, the lower lows were continuously raised, a horizontal pressure was formed at the top, the consolidation range space was gradually converging and compressing, and the strength was accumulating. Therefore, after the pattern broke, the market rose rapidly and significantly.

Standards for entry, stop loss, and take profit:You can enter the market directly when the pattern breaks, or you can enter after the break line is closed, with the first method being relatively aggressive and the second being more conservative.

In this triangular consolidation pattern, you can enter directly when the market breaks above the triangle consolidation resistance at 1837, which is an aggressive approach. Alternatively, you can enter after the break line on the hourly chart is closed, which is a more conservative approach.

There are also two ways to set a stop loss: the first is to set it at the small inflection point before the break, indicated by the blue arrow at the top of the chart. The second is to set it at the low point of the entire triangular consolidation pattern, indicated by the blue arrow at the bottom of the chart.

For setting take profit, since trend-following trades involve chasing gains and cutting losses, it's best to aim for a large reward-to-risk ratio, or to exit the trade by directly tracking the trend.

Method 2: Trade with a "big picture, small action" approach to chasing gains and cutting losses.

The pattern of chasing gains and cutting losses can also be traded using the logic of "big picture, small action," which allows for a small stop loss in exchange for a very large reward-to-risk ratio.

The chart shows the 1-hour candlestick chart of the USD/JPY currency pair.

Firstly, the market consolidates at the bottom and breaks through, confirming a bullish trend. After completing the first wave, it enters a converging descending triangle consolidation. During the consolidation, the high points at the top gradually decrease, and a horizontal support line forms at the bottom. As the market's converging space becomes smaller and smaller, the likelihood of a break also increases. At this point, you can switch to a smaller time frame.

Criteria for entry, stop loss, and take profit at a smaller time frame:

Enter when the market breaks through the descending trend line of the triangle consolidation, but you can enter from a smaller time frame candlestick, with a stop loss set accordingly. This allows for a more precise entry point, a smaller stop loss space, and a larger reward-to-risk ratio once the market moves in the anticipated direction.The chart shows a 5-minute candlestick pattern.

As the hourly chart approaches the end of a convergence, pay attention to the entry opportunities when the 5-minute trend line breaks. You can enter directly at the break or wait for the 5-minute candle to close.

The space for the 5-minute candlestick is small, even if you enter at the close of the 5-minute candle, it has a much greater advantage than entering at the 1-hour candle, and after the trend is established, you can achieve a very good risk-reward ratio.

Since the exit is based on a larger time frame while trading on a smaller one, and it's a continuation break, you can set a large risk-reward ratio, or directly follow the trend to exit.

Method 3: Adding to positions in a momentum trading strategy.

Momentum trading is a purely trend-following strategy, so during the trading process, you can choose to add to your positions to gain more profits from a single opportunity. Here is an illustrative example.

The chart shows a 1-hour candlestick chart of the US dollar against the Japanese yen, and the market trend is the same as in the previous example.

After opening a position with a floating profit following a breakout from a triangular consolidation, add to your position at the second consolidation breakout point, and adjust the stop loss to the low before the position addition. After adding to the position, if the market continues to rise, add again at the third consolidation breakout point, and adjust the stop loss to the low before the position addition.

The operation of adding to positions can also use a smaller time frame entry method, such as adding at the 5-minute level, which results in a smaller stop loss space and a larger risk-reward ratio for the added positions.

Next, let's look at an illustrative example of adding to positions at the 5-minute level.The diagram illustrates the concept of adding positions every 5 minutes. After the second and third additions, the stop loss can be set at the point of addition, at the inflection point of the 5-minute level.

Let's compare: for the second addition, the stop loss at the hourly chart level is 40+ points, while at the 5-minute level it is 20+ points. For the third addition, the stop loss at the hourly chart level is over 50 points, and at the 5-minute level, it is over 30 points.

The difference may seem small, but if you exit using a fixed profit-loss ratio, assuming the subsequent market moves 100 points, a stop loss of 40 points at the hourly chart level would only give you a 2.5 times profit-loss ratio, while a stop loss of 20 points at the 5-minute level would give you a 5 times profit-loss ratio. If the amount of stop loss per trade is 1,000 yuan, the profit at the hourly chart level would be 2,500 yuan, and at the 5-minute level, it would be 5,000 yuan, which is a significant difference.

Method 4: An intraday breakout trading strategy.

Knowing that many traders prefer intraday trading, I am sharing an intraday breakout trading strategy with you.

A reminder: when doing intraday breakout trading, you must be stable and accurate. It is essential to have the patience to wait for the best opportunities; otherwise, you can easily be carried away by the market, which poses a risk of blind and excessive trading, a serious mistake. If you want to do intraday breakout trading, you need to have strong self-control.

Choose a 5-minute candlestick chart and look for breakouts after a long period of consolidation at the 5-minute level to execute breakout trades.

The chart shows a 5-minute candlestick chart of gold.

The intraday market has formed a very clear descending consolidation pattern, with the market testing the descending trend line three times without breaking through, indicating that the market is continuously accumulating strength. After the market breaks through and you enter a long position, the price rises sharply and quickly.You can add positions after the order enters and the profit floats. For intraday rapid market movements, you can't wait for the breakdown of the consolidation pattern to enter, because the intraday market space is limited, and it's very likely that after a surge, the day's space will be exhausted, followed by a period of oscillation and consolidation. Adding positions in the oscillation is difficult to profit.

Let's talk about the method of adding positions in intraday trading.

After the market profit reaches a fixed number of points, add positions, and then adjust the stop loss. After adding positions, adjust the stop loss, and add positions every time the market reaches a fixed number of points.

The chart is a 5-minute K-line chart of gold.

After opening a position, when the floating profit of the market reaches 50 points, add the first position. After adding positions, move the stop loss of the first order up to the opening price for protection, and also place the stop loss of the added position at the opening price of the first order. At this time, hold two orders, with only the risk of one order.

As the market continues to rise, when the profit of the second order reaches 50 points, add the second position. After adding positions, use the same rules to set stop losses and protections. Then continue to add positions as profits increase until the market turns back and the orders are protected to exit.

Today's example is a market that moves quickly and has a large space, but the market will not always move so well. Therefore, in practice, it is not recommended to frequently add positions intraday.

After two additions, when the market surges, you can close the position and end the intraday trading. After all, the intraday space is limited, and after the market has completed the space, there is usually a relatively deep pullback. If you keep chasing to add positions, it is very likely to chase at the highest point, and the subsequent added positions will incur losses. It is better to take profits in time and choose the right opportunity to fight again.

Regarding intraday chasing and killing, there are a few more points to remind everyone.

(1) The consolidation pattern must be clear and standardized, and it should be recognizable at a glance. Those with irregular consolidation and vague entry points should not be forced to do so, only focusing on stable and accurate opportunities.(2) Select a day when the market has not yet experienced significant movement; the market has been in a state of "suppression."

(3) When increasing positions, one can either maintain the same position size each time or use a pyramid strategy to gradually reduce the position size with each addition, but avoid starting light and ending heavy.

(4) Choose to add positions during periods when the market is more significant and trading is active.

3. Discuss some precautions for the "chasing the trend" strategy:

1. Select instruments with strong trends. The "chasing the trend" trading requires rapid market movements to accompany it. After entering the market, orders should quickly move away from the cost area, and adding positions also requires fast subsequent trends and ample space.

Therefore, when using the "chasing the trend" trading model, it is essential to choose instruments with strong trends, such as gold and crude oil in the foreign exchange market, and fuel oil and crude oil in the futures market, which have these characteristics.

2. The "chasing the trend" strategy can be adapted to different time frames, suitable for both intraday short-term trading and medium to long-term trading.

3. "Chasing the trend" can only be considered a trading model; a comprehensive trading system must be built around this model, with all trading details clearly defined, before considering actual combat.

4. It is not recommended to engage in this kind of "chasing the trend" trading in the stock market. This is because the A-share market has a very distinct characteristic, with a predominance of volatile markets and a scarcity of strong one-sided trends.

Take a look at the Shanghai Composite Index, and you will understand; it has been fluctuating around 3,000 points for nearly a decade. Moreover, the stock market only allows for long positions, not short positions. Under such circumstances, the difficulty of engaging in "chasing the trend" trading is quite high.