To grasp this issue, it is essential to first understand what trend-following trading methods are and their characteristics.

Trend-following trading methods refer to the practice of following the development of market trends during trading, holding onto orders until the market reverses, and then closing positions to profit from the trend. Therefore, trend-following trading methods typically use trend-based indicators to track market movements.

The characteristic of this method is that the profit-to-loss ratio is quite large, but the success rate is not high, as the goal is to capture significant profit potential. However, since market movements often include a considerable proportion of consolidation phases, the success rate of trend trading is inevitably low.

So, if we want to engage in trend-following trading, we must control losses during consolidation phases and secure substantial profits during trends, ensuring overall profits outweigh losses, which is the foundation of our profitability.

How, then, can we secure significant profits during trend phases?

The key to securing substantial profits during trend phases is to use trend-following exit strategies to take profits, which allows you to hold onto most of a trend and achieve good profit outcomes.

Advertisement

Trend-following exit strategies usually employ trend indicators as technical standards for tracking trends. You should continue to hold orders until the trend indicators form a reversal signal.

Common trend indicators fall into three categories: moving averages, trend lines, and market inflection points.

Let's look at a schematic diagram. I'll use a moving average as an example. When the K-line is above the moving average, the trend is considered bullish; when it's below, it's considered bearish, alternating in a cyclical manner.

The chart shows a 15-minute K-line chart of spot gold, using a moving average as the technical indicator for trend-following exit strategies.From the red circular position on the left, when the market stands above the moving average, open a long position, hold the order, and at the red circular position in the middle, close the position when it crosses below the moving average. At the same time as closing the position, take a short position and continue to track the trend with the moving average. On the right side of the chart, when the K-line crosses above the moving average, close the short position.

This is a very basic way to exit following the trend.

How to control losses in a consolidating market?

Controlling losses in a consolidating trend is the challenge of trend trading. Because among all market trends, consolidating trends are more common, and using a trend-following trading method will result in consecutive losses in a consolidating market.

When trades result in consecutive losses, we instinctively feel fear, which is the psychological fear in trading. Because of the fear of further losses, we often stop trading, affecting our execution of our own strategies.

Therefore, for trend-following trading methods, we need to filter trading signals, reduce losses in consolidating markets through multi-indicator or multi-cycle resonance, to ensure that our mentality can be more stable.

For example, in practice, we can use the combination of trend line break and moving average to filter out false signals in the consolidating market, reducing the losses of the trading system in such markets.

The chart is a 15-minute K-line chart of spot gold, still using the long position above and short position below the moving average, but the signal must be filtered by the trend line. On the left side of the chart, the market broke downward through the upward trend line, so only short positions are taken, not long ones. Therefore, in the chart, the four red circles with stop-loss long positions will not enter, reducing the number of stop losses and losses.

By filtering, we can reduce the number of consecutive losses in a consolidating market. Other filtering methods are the same, but no matter which method, we must first review or simulate the test before using it in practice.

One thing to note is that filtering cannot only filter out opportunities for losses, but it will also correspondingly filter out some opportunities for profit, which is a proportional reduction. However, our trading should not just pursue large profits, but rather stable profits, to keep our mentality stable and make money, which is a good trading strategy.At the same time, trend trading is a relatively difficult type of trading compared to other trading methods because it greatly tests one's mindset. Few people can persist, but if one truly sticks with it, it is indeed possible to make money. Therefore, to ensure persistence, one can correspondingly reduce their position size. Under heavy positions, the psychological pressure on us is significant, and it is easy to lose the ability to execute. Compared to suffering a major loss and making a small profit, we would rather make a small profit than suffer a significant loss. Money can be earned gradually, but once a major loss occurs, there may be no way back. Remember this well.