Best Trend Following Stocks and ETFs to Watch
Trend following is a trading and investment strategy that capitalizes on the persistence of price movements. Rather than predicting reversals, trend followers identify assets moving in a clear direction and ride that momentum until evidence suggests the trend is exhausting. The approach thrives on liquid markets, disciplined rules, and a tolerance for giving back a portion of gains in exchange for capturing the majority of a sustained move. For investors seeking exposure to this style, the following stocks and ETFs represent some of the most closely watched vehicles in the current market landscape.
Why Trend Following Works
Markets alternate between trending and ranging phases. During trending phases, prices exhibit serial correlation: assets that have risen tend to keep rising, and those that have fallen tend to keep falling. This persistence stems from behavioral biases such as herding, anchoring, and the slow diffusion of information. Institutional flows, index rebalancing, and algorithmic momentum strategies reinforce these moves. Trend following does not require forecasting economic data or earnings; it requires a robust system for entry, position sizing, and exit. The best trend following stocks often display high relative strength, volume confirmation, and a steady slope in their moving averages.
Key Indicators for Trend Identification
Before examining specific names, it is useful to outline the tools trend followers rely on. The 50-day and 200-day simple moving averages define intermediate and long-term trends. A stock trading above both, with the 50-day above the 200-day, is in a confirmed uptrend. The Average Directional Index (ADX) above 25 signals a strong trend. Relative strength lines comparing a stock to the S&P 500 help isolate leaders. Bollinger Band expansions and higher highs with higher lows confirm momentum. Finally, volume should expand on advances and contract on pullbacks, indicating institutional accumulation.
Best Trend Following Stocks to Watch
Nvidia (NVDA) remains a textbook trend following candidate. The semiconductor giant has consistently traded above its 50-day moving average for extended periods, driven by demand for AI accelerators. Its ADX has frequently exceeded 30, and pullbacks to the 21-day exponential moving average have been bought aggressively. Trend followers watch for a break below the 50-day on heavy volume as a potential exit signal.
Microsoft (MSFT) offers a lower-volatility trend profile. Its cloud and enterprise software businesses generate steady cash flow, attracting persistent institutional buying. The stock has a long history of multi-month uptrends, making it suitable for investors who prefer smoother equity curves. A rising 200-day moving average provides a reliable trailing stop reference.
Eli Lilly (LLY) has been a powerful trend in the healthcare sector, propelled by obesity and diabetes treatments. The stock frequently gaps higher on clinical data and earnings, then consolidates in tight ranges before continuing. Trend followers use volatility-based stops, such as 2.5 times the Average True Range, to stay in the move without being shaken out by normal fluctuations.
JPMorgan Chase (JPM) represents trend following in financials. When interest rate expectations shift and credit conditions stabilize, money-center banks often trend for quarters. JPMorgan’s liquidity and dividend support reduce downside volatility, while its relative strength versus regional banks provides a clear signal of sector leadership.
Costco (COST) is a defensive trend name. Consumer staples often trend slowly but persistently, and Costco’s membership model produces predictable revenue. The stock rarely experiences sharp drawdowns, making it ideal for trend followers who use wide stops and long holding periods.
Best Trend Following ETFs to Watch
Invesco QQQ Trust (QQQ) tracks the Nasdaq-100, a index dominated by large-cap technology and growth stocks. QQQ is one of the most liquid trend following instruments, with tight spreads and deep options markets. Its trends are often sharper than the S&P 500, offering larger gains during risk-on phases.
iShares MSCI USA Momentum Factor ETF (MTUM) explicitly selects stocks based on price momentum. MTUM rebalances semi-annually, rotating into sectors and names with the strongest recent performance. It serves as a diversified, rules-based trend following vehicle that avoids single-stock risk.
SPDR S&P 500 ETF Trust (SPY) remains the benchmark for U.S. equity trends. While its moves are less pronounced than QQQ, SPY provides exposure to broad market trends with minimal tracking error. Trend followers use SPY to define the overall market regime: trading above the 200-day favors long setups, below favors cash or hedges.
Invesco DB Commodity Index Tracking Fund (DBC) offers trend exposure to commodities. Commodity trends are driven by supply-demand imbalances and geopolitical shocks, often moving independently of stocks. DBC includes energy, metals, and agriculture futures, providing diversification for a trend following portfolio.
iShares 20+ Year Treasury Bond ETF (TLT) allows trend followers to trade interest rate moves. Bond trends can persist for years as central banks shift policy. TLT’s inverse correlation to equities during risk-off periods makes it a valuable hedging tool within a trend following framework.
VanEck Gold Miners ETF (GDX) captures trends in precious metals equities. Gold miners amplify the direction of gold prices, offering high beta to a sustained commodity trend. Trend followers watch the ratio of GDX to the S&P 500 for signals of defensive rotation.
Building a Trend Following Watchlist
A disciplined watchlist ranks candidates by relative strength, liquidity, and trend clarity. Each week, trend followers scan for stocks and ETFs making 52-week highs, trading above rising moving averages, and showing expanding volume. They then apply a consistent entry rule, such as a breakout above a consolidation range or a pullback to a moving average. Position sizing should account for volatility; a stock with a 40% annualized volatility requires a smaller allocation than one with 15%.
Risk Management in Trend Following
No trend follows forever. The edge comes from cutting losses quickly and letting winners run. A common rule is to risk no more than 1% of portfolio equity per trade. Stops can be placed at a recent swing low, a moving average, or a fixed ATR multiple. Trend followers also monitor correlation: holding five technology stocks is not diversification. ETFs help reduce single-name risk while still capturing sector or asset-class trends.
Common Pitfalls to Avoid
Chasing extended trends leads to poor entry points and wide stops. Ignoring volume can result in false breakouts. Over-optimizing parameters to historical data creates curves that fail in live markets. Finally, abandoning a system during a drawdown often means missing the next sustained trend. The best trend followers treat drawdowns as a cost of doing business and stick to their rules.
Monitoring the Market Regime
Trend following performance varies by regime. Strong directional markets favor breakout entries; choppy markets favor pullback entries or reduced position sizes. Watching the percentage of stocks above their 200-day moving average, the VIX term structure, and the yield curve slope provides context. When breadth deteriorates, trend followers tighten stops and reduce exposure. When breadth expands, they add risk.
Final Operational Checklist
Track each candidate’s distance from its 50-day and 200-day moving averages. Confirm ADX above 25 for trend strength. Verify volume expansion on breakouts. Check relative strength versus the broader index. Define the stop loss before entering. Size the position based on volatility and portfolio risk. Review open positions weekly for trend integrity. Rotate out of names that violate stops and into new leaders. This repeatable process, applied to the stocks and ETFs above, forms the foundation of a robust trend following approach.
