Counter Trendline Trading Strategy

This is essentially a move against the predominant trend, and a potent trading strategy that can devise a means of knowing this is crucial. Note in these charts how the Plunger spikes up during pullbacks, just as it should. It measures the extend of the pullback on a normalized basis.

After you confirm an emerging counter trend price move, you should look to open a position. In all my years of trading, one thing is constant, any surprises in price action are generally in the direction of the primary trend. This is the hardest step of the 5 step approach for trading counter trend moves. You have to somehow know that the primary trend is ready to take a breather. A counter trend move is a price correction opposite to the primary trend. This move is generally smaller in nature, but may take more time to complete this consolidation pattern.

More Trading Opportunities

We should keep in mind that due to the human nature of the market, trends don’t always follow a perfectly symmetrical trend line. When trading, we should be flexible and react to the actions of the market. In addition, before making a trade or issuing a signal, they always confirm which side of the trend they are on. Forex, options and other leveraged products involve significant risk of loss and may not be suitable for all investors.

If you even think you have noticed the slightest hint that the price may reverse, leave right away. To sum up, I would like to say that you can trade against the trend but do it ‎fxcm Trading Station Mobile On The App Store extremely carefully. If you are a budding trader, I would not advise you to open the transactions against the trend at all (well, except for the heavily “tailed” candlesticks).

Trading Trend Reversals

The price corrections will be much smaller if the trend is truly upwards. The blue lines show the profit potential of trading with the trend, while the orange lines show the profit potential of trading against the trend. In the case of retail traders looking for an easy to understand strategy then a trend following strategy offer clear entry and exit points. Ideally, a trader tries to catch a trend as early as possible to be able to maximize their returns, but they don’t want to enter too early as it easy to get involved in false trend starts. As trend trading is relatively easy to understand and implement it has gained in popularity amongst retail traders.

• First, a strong movement must occur before you may enter into a transaction as we have discussed in the USDCAD example above.
• You can see that price had a strong push up , reversal type of candlestick, and then momentum drove price down.
• Psychologically, I have a difficult time buying a futures contract that has already risen considerably.
• This is particularly true for mean reverting techniques, where even a minor miscalculation can lead to a losing result.
• Counter trend moves are not easy to trade as you are going in the opposite direction of the primary trend.
• The chart below shows the long position, and also shows a second set up that was formed within the first one.
• Now, there are also a class of short-term traders that trade countertrend strategies and for whom this timeframe does not necessarily apply.

While that can certainly be a boost to your ego, it can also be a dangerous exercise, and damage both your trading account, and your own psyche when you are incorrect in your counter trend trading strategies assessment. That in itself can sometimes take a toll on a trader’s mental well-being. In markets as in life, it’s always easier to follow the path of least resistance.

Countertrend Strategy

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. I ran a similar study on my blog a while back, but with a different “three-phase” breakout system. The main idea was to avoid slippage by using stop-limit orders (i.e. only enter position at or better price than breakout signal).

It explains in more detail the characteristics and risks of exchange traded options. Any historical returns, expected returns, or probability projections may not reflect actual future performance. While the data Ally Invest uses from third parties is believed to be reliable, Ally Invest cannot ensure the accuracy or completeness of data provided by clients or third parties.

A Counter Trend Indicator: Profit From Trend Followers Weakness

When following a downtrend, intraday trend following could be beneficial as this involves a short selling strategy, which is often used by short-term traders. A countertrend trading strategy takes investment positions inverse to the current trend. This strategy can be used at any time but is often most commonly used when a trader sees strong potential for a reversal. Generally, countertrend trading may also be referred to as swing trading which refers to the opportunity to take advantage of a trend that reverses or swings in a new direction. In and Out – This strategy is for the risk-moderate traders who like to raise the risk a bit in exchange for more profit.

Traders following the trend pattern would attempt to gain from the movement by entering a long position as the price level increases. When the trend is making higher highs and higher lows, then it is showing an uptrend. When it breaks below the 90 cent level which is an all-time low, many traders will get excited to short the markets to zero.

Elliott Wave Technical Analysis E

To learn more about trading with the trend, checkout my all new updated price action trading mastery course and members area. Many traders make the mistake of assuming that a ‘reversal signal’ is only counter-trend. Trend trading may not be as complex as counter trend trading, they still experience risk, low profit margins, and lots more. Therefore, bearing this in mind, it can be said that counter trend trading is more profitable, making this one of the best tools for trade. For example, an e-mini S&P trader may notice the market drop five handles in a very quick fashion with little fundamental news to drive the move. This type of trade may be the result of a market that has simply triggered a batch of sell stops.

Pipbear.com is a blog website dedicated to financial markets and online trading. Please note that trading, especially margin trading contains high risks of losing a deposit. These products may not be suitable for everyone and you should ensure that you understand the risks involved. To contact the author please use the email address below. As you can see, the price has made a false breakout and gone slightly beyond this price limit. However, it hasn’t reached the Stop Loss order and the price went upwards again.

Traders can seek to gain from this by attempting to get out of positions before the shift manifests, or as early as possible if the movement has already begun. This is called trading trend reversals, which is also known as ‘counter-trend trading’. This 361 Capital article is not intended to provide investment advice.

If we want to successfully trade trend pullbacks, the first step is being able to identify if a market is trending or range-bound. The pullback pattern doesn’t apply in range-bound scenarios, as there is no real trend in price direction, so there’s no reason to expect that the market will bounce counter trend trading strategies back following the pullback. This strategy capitalizes on the fact that markets are noisy and rarely do they move straight up or down, even in a strongly trending state. If there is still adequate momentum, entering around a trend’s ‘mean’ price following a pullback should be a good bet.

Set A Proper Stop Loss

To better understand how each strategy works, let’s take a closer look. A stop loss order should be placed above the high of the candle preceding the breakout candle. A stop loss order should be placed below the low of the candle preceding the breakout candle. An entry order to buy will occur upon a breakout and close above this trendline, following the third push. Let’s now take a look at some of the advantages of trading a countertrend methodology.

Author: Ashley Chorpenning