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Continuation or reversal - which is better ?
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Continuation or reversal - which is better ?

  #1 (permalink)
Big game hunter
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Continuation or reversal - which is better ?

I havent seen a thread dealing with this subject although i have seen it discussed , so here goes . Does your trading strategy involve playing both reversal AND continuation trades / signals ?

My definition of a reversal trade is one in which price shows a bias or trend and trades are made opposite to that bias or trend . My definition of a continuation trade is one in which price shows a bias or trend and trades are made in the direction of the trend or bias only .

What im interested in hearing about is why you would prefer to trade one or the other or both , not specific setups , strategies or opinions and especially - settings for indicators . This should be a chance to look within and analyze the very reasons we take the actions that we take and share those findings with the crowd .

I for one only trade in the direction of a defined bias . I do so because playing both ways at once makes me develop a sense that a reversal is always coming on the next tick and I dont focus on clear continuation opportunities . However , if I did play reversals I would only play reversals for the same reason .

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  #3 (permalink)
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I prefer continuation patterns as I prefer to stick with the trend.

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  #4 (permalink)
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I stick to trend but my trading partner has a keen eye for reversals within the trend and we are testing some theories of his right now in sim. So far they are promising. If they play out well, I will do the trend trading and he will watch for the reversals.

If it works well, we'll trade both sides based on the others say so. I normally would NEVER advise this but my trading partner is my brother and we understand how each other thinks. We worked side by side for almost ten years in the mortgage business and many times we finish each others thoughts.

For right now though, we are trend only. Yesterday, his counter trend plays were spot on and today as well although we did not trade them.

If this works out, I'll post about how we do it. Otherwise, I'll keep silent.

My biggest problem with counter trend is this, you never know what the targets should be.

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Its totally subjective in my opinion. Also purely depends on what type of trader you are.

If ur a positional trader , sure Trend following can mint a lot of money. But trend following is not highly recommended for a day trader who closes his positions at end of session daily. A day trader should ( not must ) try to trade reversals as much as possible. Trading reversals gives u better Risk Reward compared to trend following strategies.

I open my trade as a scalp and then keep on trailing stop once profitable. Most of the long entries taken few ticks above Swing low, which gives me normal RR ratio at 1:3 and above.

Attaching a sample chart here which i have snapped month back or so , where i was testing some of my MC strategies on ninja ( SIM ) account on Russell 2000 emini.

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Eric j View Post
I havent seen a thread dealing with this subject although i have seen it discussed , so here goes . Does your trading strategy involve playing both reversal AND continuation trades / signals ?

My definition of a reversal trade is one in which price shows a bias or trend and trades are made opposite to that bias or trend . My definition of a continuation trade is one in which price shows a bias or trend and trades are made in the direction of the trend or bias only .

What im interested in hearing about is why you would prefer to trade one or the other or both , not specific setups , strategies or opinions and especially - settings for indicators . This should be a chance to look within and analyze the very reasons we take the actions that we take and share those findings with the crowd .

I for one only trade in the direction of a defined bias . I do so because playing both ways at once makes me develop a sense that a reversal is always coming on the next tick and I dont focus on clear continuation opportunities . However , if I did play reversals I would only play reversals for the same reason .

Hey Eric,

I think that there is a difference between a reversal which is a reversal of an existing trend and countertrend trading. Personally, I wouldn't trade countertrend but I love to trade reversals. I traded only with the trend for years.....but over time began to recognize trend reversal patterns which added to my trading arsenal.

Jeff

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  #7 (permalink)
Big game hunter
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Jeff Castille View Post
Hey Eric,

I think that there is a difference between a reversal which is a reversal of an existing trend and countertrend trading. Personally, I wouldn't trade countertrend but I love to trade reversals. I traded only with the trend for years.....but over time began to recognize trend reversal patterns which added to my trading arsenal.

Jeff

Reversal into the exsisting trend ? Thats what I look for mostly , a pullback . Reversal of an exsisting trend can be catching the knife but I am starting to see the potential in perfecting the art of trend reversal trading as thats where the big chunk of a move lies IMHO . If you can dodge the knife more then you can catch major gains . Just scalping against the trend is suicidal .

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Eric j View Post
Reversal into the exsisting trend ? Thats what I look for mostly , a pullback . Reversal of an exsisting trend can be catching the knife but I am starting to see the potential in perfecting the art of trend reversal trading as thats where the big chunk of a move lies IMHO . If you can dodge the knife more then you can catch major gains . Just scalping against the trend is suicidal .

Agree and disagree both.

Agree , if trend still to continue in same direction. But one is never so sure about it, When trend will exhaust ? I do look for extremes created ( single prints , delta divg , unusual volume spikes etc ) and take entry on next bar on cross of previous bar high ( in case of long ).

Eric , when u grow as a trader , u get grip on things , tracking same instrument daily. Its more like experience rather then any technical setup. In my trading life , I have met traders who just trades on Time & Sales data and most of them r Trend Reversal traders. And to be honest , they r more profitable then me too. When i speak to them how do they interpret T&S data so well , they simply says its all about training ur eyes ( do i need to say they r trading markets since more then 20 years or more ?).

So basic question is still there , if one can anticipate if trend is going to continue or exhaust with surety, he doesnt need to seek for any other setup in this world. He can lead to financial freedom within no time.

Darshiit

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Darshiit View Post
Agree and disagree both.

Agree , if trend still to continue in same direction. But one is never so sure about it, When trend will exhaust ? I do look for extremes created ( single prints , delta divg , unusual volume spikes etc ) and take entry on next bar on cross of previous bar high ( in case of long ).

Eric , when u grow as a trader , u get grip on things , tracking same instrument daily. Its more like experience rather then any technical setup. In my trading life , I have met traders who just trades on Time & Sales data and most of them r Trend Reversal traders. And to be honest , they r more profitable then me too. When i speak to them how do they interpret T&S data so well , they simply says its all about training ur eyes ( do i need to say they r trading markets since more then 20 years or more ?).

So basic question is still there , if one can anticipate if trend is going to continue or exhaust with surety, he doesnt need to seek for any other setup in this world. He can lead to financial freedom within no time.

Darshiit

It seems the traders that are sure of what will happen dont last long . If you mean that they are sure of what a high probability setup is then Im on board with that .

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  #10 (permalink)
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Darshiit View Post
Its totally subjective in my opinion. Also purely depends on what type of trader you are.

If ur a positional trader , sure Trend following can mint a lot of money. But trend following is not highly recommended for a day trader who closes his positions at end of session daily. A day trader should ( not must ) try to trade reversals as much as possible. Trading reversals gives u better Risk Reward compared to trend following strategies.

I open my trade as a scalp and then keep on trailing stop once profitable. Most of the long entries taken few ticks above Swing low, which gives me normal RR ratio at 1:3 and above.

Attaching a sample chart here which i have snapped month back or so , where i was testing some of my MC strategies on ninja ( SIM ) account on Russell 2000 emini.

Yo!

"One mans meat is another mans poison" !! !! !!

I don't get bogged down on whether I am a trend follower or a bottom picker (smelly finger). I know what I am looking for and I trade when I see it, end of.

One thing about day trading reversals... well the ES opened up (RTH) at 1117 and has a high at 1124 - that means there were 28 highs during the day, but only one of them turned out to be true...

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