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counter trend trading?


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counter trend trading?

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  #1 (permalink)
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i wonder if its bad that i trade counter trend trades much better than with trend trades? i just see the counter trend trades, or 'failures' of the current trend setups much better.. i know i trade a scalping style, but even in the 4/6 tick world, there are trends..

what are you guys thoughts on this?

also, im not sure if this is the correct place for this post..

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  #3 (permalink)
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Countertrend trading can work very well especially if trends are weak. I find can work well in a choppy market. But nothing like a good trend trade in my opinion. Both work both are good depending on setup.

"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."
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  #4 (permalink)
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Counter trend are always riskier so you can only aim for small gains as sometimes markets reverse very quickly to daily trend. If you feel this suits you then go ahead as most important thing is to make money at the end of the day.

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Trade what you trade well, and if you trade well then, trade as much as you can (time wise not overtrading or overleveraging).


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I think one key to counter trend is to try and identify strength of trend. To do trade against a strong trend is like getting in front of a locomotive.

I have a a few counter trend strategies that have a very high win rate.

"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."
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  #7 (permalink)
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i feel like i see/feel the pullbacks/retracements a whole lot better than i am able to do the same on the trend continuation...

dont believe anything you hear and only half of what you see

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  #8 (permalink)
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liquidcci View Post
I think one key to counter trend is to try and identify strength of trend. To do trade against a strong trend is like getting in front of a locomotive.

I have a a few counter trend strategies that have a very high win rate.

care to share them?

dont believe anything you hear and only half of what you see

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  #9 (permalink)
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madLyfe View Post
care to share them?

Sorry madLyfe can't reveal the secret sauce.

"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."
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definitely trade what you trade well - I totally agree...something different is when you feel inside that you don't want to trade this way...trading needs to be done without presure..

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I think you should decide to join one camp only and then seek out a vehicle ( commodity ) that is behaving accordingly . It becomes easy to pick a losing fight with the market otherwise. Markets mostly rotate and chop so I look for rotational support with the bias of the markets acceptance of current value. For me that is if we are above previous days midpoint, and in congestion, I surmise the market has accepted this higher level and is therefore accumulating so I am buying swing lows of the day until I make my objective and then I turn off the computer. I cannot trend trade - it always gets me in trouble.

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  #12 (permalink)
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I am counter trending as well , honestly it is more difficult for my mind to get into the trend mood. If you do well with counter trends, don't need to go for trends just improve your skills with the actual method. In my case the only way to concentrate and master trend strategies would be to stop trading the counter trends, focus with just one method at a time (at least for me).

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redratsal View Post
I am counter trending as well , honestly it is more difficult for my mind to get into the trend mood. If you do well with counter trends, don't need to go for trends just improve your skills with the actual method. In my case the only way to concentrate and master trend strategies would be to stop trading the counter trends, focus with just one method at a time (at least for me).

thanks redratsal.. ive actually been silently reading your thread, so thank you!

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I had not ever thought/look what type ( trend or counter ) of trade i take, cause their validity if comes i give them priority over any type of trend/counter-trend situations. But recently i felt, i loose money in some type of trades which fall under distinction of Counter-Trend/In-Range trade. I tried to evolve a visual confirmation of trend that fit on definition of somewhat "new" or "fresh" leaving the risk of getting In-Range/Counter-Trend and gave priority over my old validation system. It might sound trading breakouts...but i can call breakouts as a subset of this new approach.
Process is just a reverse of what i had been doing....but i feel now trends, better fits me and i have to trust them.

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with my method, counter trades only require half the risk as a trend trade.
I'm more successful with trend trades though so there is a trade off.
I prefer with the trend but every once in a while I'll risk a counter
and see what I can pull.

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Most traders trade with the trend. Most traders lose money. Maybe counter-trend is the way to go.

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mRoss21 View Post
Most traders trade with the trend. Most traders lose money. Maybe counter-trend is the way to go.


1. How do you know that most traders trade with the trend. Maybe they just pretend to do it.

2. If a majority of trend traders loses money, does that mean that a majority of countertrend traders does not lose money?


Or would you deduct that if Greece has a budget deficit, there must be another European state that runs a surplus?

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I counter trend trade quite often, if nothing else it's by definition. That is to say when price comes to a point I think it will change direction and start trending the other way I will initiate a trade before higher highs or lower lows, etc...are in place. In the process of doing that, if it works out that through price action I determine that I got in at the "right" spot I will hang on to it. In any event it is by definition counter trend trading so my point is there is nothing wrong with it unless your intent is to just scalp, in which case you yourself might get scalped by not trading in good areas of s/r.
Location is KEY. Of course the one thing I did not mention is that time frame is a factor. You could be in a situation where you are counter trading for example on a 5m chart but going with the trend on a daily.....all depends on how you want to look at it.

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kbit View Post
I counter trend trade quite often, if nothing else it's by definition. That is to say when price comes to a point I think it will change direction and start trending the other way I will initiate a trade before higher highs or lower lows, etc...are in place. In the process of doing that, if it works out that through price action I determine that I got in at the "right" spot I will hang on to it. In any event it is by definition counter trend trading so my point is there is nothing wrong with it unless your intent is to just scalp, in which case you yourself might get scalped by not trading in good areas of s/r.
Location is KEY. Of course the one thing I did not mention is that time frame is a factor. You could be in a situation where you are counter trading for example on a 5m chart but going with the trend on a daily.....all depends on how you want to look at it.

i would say counter trend to that time frame you placed the trade for/on..

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I think 'trend' is extremely subjective and relative.

I think the only thing that matters is how good one is at identifying a worthy trading opportunity.

If I look back on my trading history, I have probably had the exact same amount of success/failure with what I interpreted as trend/counter-trend. I have also had about the same amount of success/failure with any discretionary methodology as well.

So imo, it's all relative and comes down to execution.

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forrestang View Post
I think 'trend' is extremely subjective and relative.

I think the only thing that matters is how good one is at identifying a worthy trading opportunity.

If I look back on my trading history, I have probably had the exact same amount of success/failure with what I interpreted as trend/counter-trend. I have also had about the same amount of success/failure with any discretionary methodology as well.

So imo, it's all relative and comes down to execution.

Id agree with your statement, under some conditions :

1) The trade you are entering matches defined set of signals that you know in your sleep and can recognize. I agree there are number of patterns and physical price points where likelyhood of TP is greater. Though they need to be defined.
2) The trade fits RR (risk to reward ratios of your money management system) If it does not you exposing to much of your capital for very little possible gain, this turns into chasing (I'll just make few pips here will go my way) and false hope trading.

But there are couple of things i would like to say about my way of trend trading. I trade FX (EU/USD, GBP/USD, AUD/USD, GBP/Yen) my working timeframe is 5 minutes, my trend filter is 30 minutes. The set of indicators i use is similar to Big Mikes wave, though i prefer Raghee's wave as trend. (Nothing personal Mike ) Now typical ( and i underline typical which means most of the times but not always) trend trades are smooth and easy to manage, they behave, and quickly set you up into position to protect your profits rather than manage the heat. In my mind i dont like being in a heat, i prefer nice blue color of my positions. Further trend trades in most cases will provide 'second chance' waht i call a signal that trade is not going the way you believed initially and confirming change, time to collect and exit with few pips +/-. On the contrary counter trend trades tend to jiggered, candles can be aggressive against you, only to come back in your direction, this is generally caused by people setting up for the continuation. This price action behavior is generally undefined and hard to read, so you can be exposed to needing to handle your emotions and adrenaline, and further not enter into trade that will provide you with good profits, as you have been consumed managing the 'hard' trade the easy one got away

I am sorry, but i'd would not recommend trading against the directional filters, and would not recommend having the method without one defined, i just prefer smooth sailing and 'boring' trading than rough seas and adrenaline rush. My recommendation is if you desire adrenaline go and jump out of plane or go to the racing track and drive the car @ 200 miles per hour. Trading is meant to be BORING,

There is a thread tht discuss how many of us make living, and in there one very smart gentlemen mentioned that patience is the key, the right set up occurs few times a day and when they do, if you are there and realise those entries you will be able to amange those trades to substantial profits in a nice and boring way with a smile on your face

Sry if i have offended anyone, just my thoughts.....

Markets are logical and
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1. How do you know that most traders trade with the trend. Maybe they just pretend to do it.

2. If a majority of trend traders loses money, does that mean that a majority of countertrend traders does not lose money?


Or would you deduct that if Greece has a budget deficit, there must be another European state that runs a surplus?

Sorry, didn't mean to hit a sore spot. Just having fun.

From reading this forum and others, it appears to me that most traders 'attempt' to trade with the trend. And unlike Greece, trading is a zero-sum game, so if a trend trader is losing a counter-trend trader is wining.

Obviously there are many reasons a trader loses beyond trading with trend or counter. Personally, I prefer to trade with trend, with an occasional counter-trend trade during the last hour of the trading day.

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Counter trend trading has some often over looked advantages. One is better fills & less slippage because your
order is not competing with thousands of trend is your friend followers trying to enter a trend.
Like most traders I have spent too much time trying to perfect trend trading. There are many helpful techniques on Big mikes such as Perrys method , mwinfreys etc.
For now I still see counter trend enteries more easily than trend setups, but my trend enteries are showing
improvement.

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  #24 (permalink)
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I counter-trend trade, a lot.

Most of the times, I get in too early.
But thats fine, I move from swing to swing, stopping and reversing from trend to trend and just adding on positions once im in the trend.

It does get quite risky if the market did'nt reversed direction and starts ranging instead of trending on the opposite direction, however it will still move in my direction, except slowly, then I know Ill have to quickly exit

or else its going to continue back in the original direction and I'm going to get whipsawed.

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Obviously in a trade we want to be aligned with the "Other Time Frame" Trader. OTF being identified as the "smart Money", Institutions. Algo's, etc. Have the wind at your back, etc.. These are the trades the seem to just work almost immedialtly and move with momentum...

However, Trend can be defined by TImeframe.. As a day trader, unless the market is moving directionally to a new level or trending in one direction with very little rotation throughout the day - a low probability, it is going to rotate..

Rotation is really mini trends within a developing day timeframe..

From an auction theory perspective, the market is there to do business, attact buyers & sellers and establish a fair price or value - where most of the volume will be conducted for the day. The market will typically test the extremes away from fair value to attract buyers or sellers... Directional moves can occur when one side is overwhealmed by the other and a new value is agreed upon at a different price... This is just one way to look at part of the process and is not the same condition all the time.. just an example.

I trigger my trades off of 1.25 range bars and enter off .750 volume bars but keep an eye on 15 minute bars... I always want to know where the other guy is going to get stopped out and target those stops.. Many use Swing Hi/Lows to identify Supp & Res, in their respective timeframes and trail their stops there. If you use 60min bars it is made up of 4 - 15m bars, 30m - 2 - 15m bars, 15 m - 3 - 5min, etc. same for tic, candle, renko, etc. All the different timeframe traders, especially interday pile therir stops in similar areas as they trail their stops.. at their respective swing/high lows based on their timeframes... the stops are still there - when I trade a "counter trend" on the day timeframe I am looking to scale at the 15 minute extremes as I shoot for an identified target further out - against the developing trend.. after all when the developing trend fails the market will flush to the other extreme.. stops & reversals... and a new trend in a shorter timeframe may emerge..how many times do we see a several day "correction" against a daily trend? etc.

In reality, I don't know which side will ultimately prevail but I do need to know where the fuel is to draw the market..

As a day trader, I consistently see the market rotate to pick stops off at the 15min timeframe even if counter trend..assuming you know the trend... Obviously a trend may be up in the Day Timeframe but as a daytrader I know that the weak hands are vulnerable and the market may go lower to clean out the paper (stops) accumulating under the market before moving higher..

Just think where all the stops are building relative to your timeframe and expect the market to "test" there.. Also this is where the weakhands lose their positions to the strong hands, IMHO. How many times as a trader have you have said to yourself they "ran the stops," etc.. To me it is the marekt being drawn to where the paper is resting.. just a visualization of the opportunity.. IF the market can't get there then it tells you that there are buyers accumulating positions ahead of the stops and the trend will reassert istelf and you are on the wrong side.. When the weakhands can't get flushed or they just one tic a supp area 15m bar and for me if a key target is also there then potentially time to exit or reverse.. it really depends if I have seent the OTF buyer activity earlier in the session after the first hour..ala MP theory though.. BTW, these 15m H/L are mini scaling targets towards a more signifigent target. I just look for hwere the stops are and target 2 tics before, just in case it doesn't get through...really depends on the structure - discretion here

On the interday bar chart if you look at a 15m chart, this is relating to the ES, (your market may have different volatility/characteristics, etc), you will see how often the market will take out previous 15m H/L before continuing the emerging trend... I always want to take set ups at extremes when there are 15m h/L away from my entry.. just think of how a flag formation builds and how the market will often test 2 to 3 times against the pole with 2 - 3 pullbacks to a slitghtly lower low against the 15m bars, asssuming a bull flag and then break out in the direction of the flag. Then the breakout crowd comes in and is the fuel for the "trend" move. Or the flag morphs into a symetrical triangle with a potential breakout and potential move as one side is overwhealmed, just as an example.. I want to be positioned if the breakout doesn't happen if the flag turns into a triangle as their stops and reversals will support my countertrend position or if my countertrend trade stalls after taking out the last 2 or so 15m lows for the stops then I "suspect" the weak longs are out and the market will potentially fulfill the flag with a directional move up. I may reverse to get ahead of the breakout boys on the upside. If these are defined as counter-trend then they are until or if the flag / developing triangle fails then they become a new trend in the opposite direction...either way the fuel is there to get the test. I like these set ups the best for the first time through... when the most paper is there...fuel... Also in the ES the market tends to rotate in the lighter volume time of day when the Algo's can move it around.. Just my observation from years of donations to the former Floor Traders Retirement Fund.. This is just an example of when a market may transition in a interday timeframe..

I guess this is a countertrend strategy but in the daytimeframe this can be defined as a "trend" within the developing daily trend... think how many times the trend is up, the market gaps higher moves up a bit...sellers respond and take the market down to new lows for the day or even touch the previous days low, take stops out by a few ticks or points and then reverses and closes higher or mid-point. Was the trend up or down for the day? I trade from both sides and look to catch the other guy off-sides.. If the market breaks out to downside and that referenced gap is really the beginning of something larger, then I have used the initial rotation for entry and stop flush for scaling and am on-board for a larger trending move to a new level opposite that gap up. By the way, I must have a key target at the gap to take the countertrend, if not I need some time for it to develop to see the structure before commiting. I always have targets but I know that I really don't know.. If the counter trend trade stops before taking out a low or tests them I will have scaled and may cover my last scale or scratch.. If it breaks out from the counter trend lower in the above example then I look for another setup to put positions back on as if it was a new first-time setup when it comes... but I have already banked some $ and have a free trade..

I might be way off here but it does work for me... If the above is not clear - I will be glad to clarify.. If you have better ideas I would love to hear them. After all I'm here to contribute and learn...

This is how I define trend from both sides in my timeframe - not saying it's right or anything but it does allow me to see the market from both sides.

Tom

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  #26 (permalink)
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I think there are always traders who see a big up trend, and then they sell short at the outer deviations in hopes for a return to the mean. Then there are traders who wait for the opposite, they see a big up trend but wait for price to come down ("cheap") to near the bottom deviation to make a long entry.

And of course you have everything in between, for example a trader who waits for a "bounce" off of some type of moving average like VWAP or etc to make an entry.

In general, I don't think any of these methods are inherently flawed -- I think they can all work. It's just a matter of proper risk management and how much experience the trader has trading this way, because there are always going to be exceptions that a good trader will account for or see and pull his trade and not blindly pull the trigger on a setup just because price touched a line on his chart.

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  #27 (permalink)
Chicago, IL. USA
 
Experience: Advanced
Platform: IRT, Bookmap
Broker: EdgeClear, Rithmic
Trading: ES/NQ/Volume Profile
 
Posts: 38 since Oct 2011
Thanks: 24 given, 79 received

Trend is really a function of timeframe... If one puts up a 5 minute chart there are numerous trend/counter trend moves throughout the session overlapping each other or stairstepping in a overall daytime trend with countertrend moves within the day timeframe.

This is assuming we are not in a market on a tear that has breakaway gaps, etc...

Most of the time markets rotate which is where a countertrend trader can catch'm coming and going or stalk the extremes as you referenced.

Mike: I certainly concur that almost any actionable tool that can be interpreted consistently whether a MA, VWAP, S/R, doesn't matter, that can be leaned on with a reasonable degree of probability will work. Actually when I traded currency spreads, before pairs, I had a "Magic 8 Ball" and would ask it should I "buy or sell"... Often it said "ask again.." By the way, when my brain flip/flops between buy/sell I stand aside... Brilliant eh...

It really does come down to being aligned with your timeframe and tools... I find that if I do hit & run trading I am profitable but I am also tired by 10:00a cst and then my concentration diminishes and I start missing things... Very dangerous.. at least for me..

I try to wait and while waiting can be difficult, it allows me to get a position on, using a 15min timeframe for rotations... I need the time so I can relax... if that is an accurate term...

For entry I'm there with everyone else - threading a needle.. I risk 6 tics on ES... Start Scale initially 2 pts out, and then a sequence of 15m h/L scales along the way towards a more signifigent target - usually a Major Volume Node..

The 15 H/L is where stops/fuel are to create the rotation energy. Just how I have rationalized why markets rotate.

Just a timeframe that fits my brainpower... once I have my first scale - I go B/E, I put my resting exit orders in and let the market do it's thing..

Good discussion.. Hope this helps those who are trying to define what type/timeframe trader they are..

BTW, I am not advocating any specific timeframe just sharing some rationale on my perspective on market dynamics, etc.. and how I participate..



Tom

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futures io Trading Community Psychology and Money Management > counter trend trading?


Last Updated on November 22, 2011


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