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Most indicators of trend are taken for granted even though many times they are used successfully by stock and commodity traders. It has been my experience that blindly following canned indicators can lead you into a false sense of security, especially if you begin using the indicator when it is correctly calling the market. If you begin using a trend-following indicator during its inevitable whipsaw period, you will lose faith and look for another indicator. Therefore, if you develop an indicator using some basic logic and reason which is related to known market action, you can have a little more faith in a particular indicator. There is also the argument of using a basket of indicators and/or using them in a tree structured approach. No doubt that is a safer approach, but it is not the purpose of this article.

It is accepted that the successful trader must identify and follow the trend of the market to be a consistent winner. There are, of course, many indicators available to help identify the termination of a trend and prepare you to reverse your positions. Adding even more confusion to the arena, you have to determine which type of trend is being identified: short, medium, or long. Again, this is not the purpose here.

I would like to share with you a simple trend-following technique that seems to work very well. It works because you must adapt it to the market you want to analyze. In other words, the parameters are going to be different for each market, whether it be stocks, commodities, mutual funds, or whatever. A complete explanation of the system will be discussed while being applied to the Dow Jones Industrial Average. I know what you're thinking--no one can trade the DJIA, so why use it? That's the very reason I have used it. I did not want it to look like I had culled hundreds of charts to find one that best supported this technique.

First of all, you must determine your trading objectives: short, medium, or long-term. Short-term (a few days to a few weeks) would rely on daily data for the trend information. Long-term (greater than six months) would use almost exclusively weekly data. Medium-term would use a combination of both.

Then, of course, there are combinations of daily and weekly that you can use to put conditional restraints into your trading system. The technique of using longer-term indicators to determine which side of a shorter-term indicator to make your trade is usually a profitable trading strategy. However, for the purposes of this article, I will stick to the short- to medium-term.