NatWest Trend Follower

NatWest offers a liquid, well-followed UK banking bellwether. As the formerly state-owned ex-RBS (the government held about 84% from 2008 until its full exit on 30 May 2025), it has a track record of powerful, theme-driven trends. It is highly liquid, has active options on ICE, and can be traded via spread bets and CFDs for flexible leverage. Its trends are now driven by Bank of England rate policy, capital returns and the UK credit cycle.

Use the 20 EMA for the short-term trend and entries, the 50 EMA for intermediate trend confirmation, and the 200 EMA for major trend direction. The 20 EMA is most important for entry timing - enter on pullbacks to a rising 20 EMA in confirmed uptrends.

An uptrend is confirmed when: price makes higher highs and higher lows, price is above a rising 20 EMA and 50 EMA, the MAs are properly aligned (20 > 50 > 200), and ADX is above 25. All conditions should be present for a high-confidence trend.

A trailing stop moves in your favour as price moves favourably, locking in profits while allowing the trend to continue. It removes emotion from exit decisions and ensures you capture the majority of a trend while protecting gains.

For cash trading, £3,000-15,000 is comfortable for meaningful positions (remember 0.5% stamp duty applies on share purchases). Spread bets and CFDs need less upfront because they are leveraged - but size by risk, not by margin. Options can be traded for the premium only; one ICE contract covers 1,000 shares.

Trade NatWest longs only when the FTSE 350 Banks index is in an uptrend (above rising MAs, higher lows). NatWest correlates roughly 0.85-0.92 with this index. The strongest NatWest trends occur when the sector supports the direction. Avoid NatWest longs when the banking sector is breaking down.

A pullback entry waits for price to retrace to support (the 20 EMA) in a confirmed uptrend - it offers a better price but may not trigger. A breakout entry buys above a recent swing high - it confirms momentum but at a higher price. Pullback entry typically offers a better risk-reward.

Expect 3-6% pullbacks in strong trends. Check: Is volume low (healthy)? Is price holding key support (20 EMA, swing low)? If yes, hold the position. Review your stop level, not the price. Pullbacks to the 20 EMA are opportunities to add, not exit.

Calculate: Position Size = Risk Amount / Stop Distance. Risk 1-2% of capital per trade. Also limit the position to 10% of portfolio value. Example: £50,000 capital, 2% risk = £1,000. Stop 20p away. Position = 5,000 shares - but the 10% cap (£5,000 = ~833 shares at 600p) binds first, so size down to that.

Primary exit: when the trailing stop (below swing lows) is hit. Secondary: a close below the 20 EMA. Confirmation: ADX falling below 20. Don't exit on emotion or minor pullbacks. Let the system work - trend following accepts giving back some profit from the highs.

Use ADX and MA analysis. ADX > 25 with MAs spreading = trending regime (full activity). ADX < 20 with MAs converging = ranging regime (reduce activity). Also monitor ATR - expanding volatility supports trends. NatWest trends best around Bank of England rate shifts, capital-return news and clear sector themes.

Score factors: Trend direction (3 pts: price > 20 EMA, 20 > 50 EMA, 50 > 200 EMA), Strength (2 pts: ADX > 25, ADX rising), Pullback quality (2 pts: near 20 EMA, RSI 40-60), Sector (2 pts: FTSE 350 Banks uptrend, NatWest outperforming). Enter at 6+/9.

For trend following with options, use ITM or ATM calls with 1-3 month expiry on ICE (1,000 shares per contract, third-Friday expiry) - this provides leverage with reasonable theta. Bull call spreads reduce cost but cap upside. Roll positions before expiry. Alternatively, spread bets (tax-free in the UK) and CFDs give linear leverage with flexible sizing - size by risk and respect leverage limits.

Single stock (NatWest): maximum 10% of portfolio. UK banking sector: maximum 15%. Total financials: maximum 30%. Total portfolio heat (all position risks): maximum 15%. These limits ensure survival even if the banking sector reverses sharply. Note NatWest and Lloyds are highly correlated, so size them together.

Document: weekly trend direction, daily entry rules (20 EMA pullback + 6/9 score), position sizing (1-2% risk), exit rules (trail below swing lows), risk limits, and product choice (cash, spread bet, CFD or options). Journal every trade. Review weekly. Track win rate (target 45%+) and profit factor (target 1.5+). Backtest changes before implementing.