trend following
Trend Following means buying an asset because its price is already rising, and selling because it is already falling, instead of guessing where it will turn.
In plain English
You know that moment at the bus stop when three people suddenly start walking fast towards a danfo that has not even parked properly, and soon everyone on the road is running the same direction without asking why. Nobody stopped to check if the bus was going to Ikeja or Yaba. They just saw movement and joined the movement. That, in a plain sense, is trend following.
In investing, a trend follower is not trying to be the clever one who spots a stock before anyone else notices it. They are the one watching the crowd and the price chart, and when a share has been climbing steadily for weeks, they buy in, betting that the climb continues a little longer. When the price starts sliding and keeps sliding, they sell, without waiting to see if it will magically bounce back.
Say a Nigerian investor is watching Dangote Cement on the NGX. It moved from ₦300 to ₦320 to ₦350 over two months, each week a little higher than the last. A trend follower buys around ₦350, and not since they know something special about cement demand, but because the pattern of rising prices is the signal itself. If it later falls from ₦350 to ₦330, they sell, protecting what they gained, rather than holding on hoping for ₦400.
In London, the same idea shows up with funds that track momentum in the FTSE, buying whatever sectors have outperformed in recent months and calmly stepping away from the laggards. A Nigerian in Manchester sending money home might even notice this indirectly, if the ETF their pension is invested in is doing exactly this kind of chasing, without them ever seeing the word trend on a statement.
The honest catch is that trend following works well when trends are long and clear, and loses money in choppy, sideways markets where price jumps up and down without committing to a direction. It asks for discipline more than intelligence, the discipline to follow the signal even when your gut says something else entirely.
An investor buys shares in a Nigerian bank stock at ₦28 after watching it rise steadily from ₦22 over six weeks. Two months later, the price has fallen to ₦25, and they sell immediately rather than waiting for a recovery, because the rising trend that got them in has clearly broken.
Questions people ask
Is trend following the same as gambling on hype?
Not quite. Gambling on hype usually means buying because everyone is talking about a stock, with no plan for when to exit. Trend following uses clear price signals, both for entering and for leaving, so there is a rule guiding the decision, more than excitement.
Can an ordinary investor in Nigeria actually do this without special software?
Yes, in a simple form. Watching the general direction of a stock's price over several weeks on your brokerage account app and only buying during a clear upward run is basic trend following. Professional versions use charts and data, but the core idea is available to anyone paying attention.
What is the biggest risk with this approach?
Markets that move sideways without a real trend. In those periods, a trend follower can buy on a small rise, only for the price to reverse quickly, then sell on a small dip, only for it to rise again, losing a little money repeatedly to false signals.
Last reviewed