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Counter trend trading

  • #1
  • First Post: May 5, 2006 9:03am May 5, 2006 9:03am
Hi all,

I've been posting mostly on Moneytec but I think I'll move here, I like it more, more friendlier...

For almost 3 months now I have been trying to trade against the trend, basically waiting for momentum to decrease and the build up my position against the trend. This worked wonders until 2-3 weeks ago since basically there was only one direction and that was shorting the dollar everywhere. Everytime the momentum seemed to slow I thought at least a correction would take place. So I would start building up my position. No way, just spiked even further, taking me out everytime.

My live account decreased by 25% - I started live trading at the beginning of April, after taking my demo account up 40% using only conter trend trading.

At this point I'm thinking to ditch this system completely; I know what it is being said about a new system to not ditch it at the first lost trades but I am really questioning the whole concept of counter trend trading after watching the last 3 weeks movement against the dollar. Just open a weekely chart and see 3 nice and clear bulish candles.

Currently I'm on hold, no more live trades, till I decide what to do next. What do you people think of counter trend trading? Is anyone in here successfully trading against the trend in a consistent manner?

Thanks,
-soso
-soso
  • #2
  • May 5, 2006 9:10am May 5, 2006 9:10am
before losing 25%, how much have you earned with this strategy? calculate the risk/reward. maybe it is normal.
  • #3
  • May 5, 2006 9:18am May 5, 2006 9:18am
I was up 7%. Then down 25% from my initial deposit. That means the drawdown is 27.5%.

Truth is, the last 3 weeks were the kind of weeks that this system was losing. Still, I would like to know if there is any other person who successfully trades live against the trend in a consistent manner.

-soso
-soso
  • #4
  • May 5, 2006 9:19am May 5, 2006 9:19am
I wouldn't discard the system entirely, but I would be tinkering with it to identify when there is strong momentum behind a trend. Quite often slipping up a timeframe to look at what is happening there can help with that.

Countertrend trading has its place, and it sounds you were going ok with it, I would stick with it, treat it as soft clay, just needs some moulding.
You can quit and they won't care, but you will always know.
  • #5
  • May 5, 2006 9:23am May 5, 2006 9:23am
Soso,


Just my opinion, but you should always have more than one trading strategy. One for trending markets and one for range-bound markets. Maybe one for long term trades and one for intraday trades. You get the picture.

if you wish to trade during times when the market behaves as it is presently, you should find a system (or better yet a model) that you can profit from.

Don't discard your present system just because it isn't working as of lately. Save it for the times when the market is ripe for using it. Think of it as another club in your bag of trading tools.
Hope this helps.
  • #6
  • May 5, 2006 9:38am May 5, 2006 9:38am
Quoting soso_beton
Hi all,
...

For almost 3 months now I have been trying to trade against the trend, basically waiting for momentum to decrease and the build up my position against the trend.
Look at it this way. At least you have practiced Patience in waiting for the market to reach your entry levels.

This worked wonders until 2-3 weeks ago since basically there was only one direction and that was shorting the dollar everywhere. Everytime the momentum seemed to slow I thought at least a correction would take place. So I would start building up my position. No way, just spiked even further, taking me out everytime.
I'm guessing this was attractive to you as you could probably calculate the "Expected" correction. {Pivot or Fib}
They can also be calculated for Trend Continuation.

My live account decreased by 25% - I started live trading at the beginning of April, after taking my demo account up 40% using only conter trend trading.
Probably a neccessary evil to engrain Money Management {Capital Preservation} into your Trading Style.

At this point I'm thinking to ditch this system completely; I know what it is being said about a new system to not ditch it at the first lost trades but I am really questioning the whole concept of counter trend trading after watching the last 3 weeks movement against the dollar. Just open a weekely chart and see 3 nice and clear bulish candles.
My suggestion would be to take what you have learned so far and climb another rung or two on the ladder of trading skills. There is a preponderance to "The Market has gone so far that it cannot continue." Why? You've seen it. We all have. But usually when we are on the wrong side. Why are we so willing to "Let it Ride" when we are losing and Not when we are Winning.
The Grail Search is about Objective Trading. Remove the Subjectivity.

{Bemac Truism. "Always Trade in Cold Blood. Never in Anger."}

Currently I'm on hold, no more live trades, till I decide what to do next. What do you people think of counter trend trading? Is anyone in here successfully trading against the trend in a consistent manner?
Not me. Occasionally Scalping or Cut 'n Run, but not consistantly.


Thanks,
-soso
Conclusion:

Use the same methodology you have been but try it WITH the trend.
  • #7
  • May 5, 2006 10:19am May 5, 2006 10:19am
My 2 cents, for whatever it's worth...

I, too, like to be a contrarian at times and trade against the intermediate trend. My current system hasn't been thoroughly tested yet, but looks promising and has two main concepts:

1) Only trade in the direction of the trend in a higher time frame. For example, if you trade 1 hour charts, trade in the direction of the 4-hour timeframe. You'll be waiting for retracements/reversals/countertrends on the 1 hour, but will still be going with the longer-term trend. In Dow Theory terms, you're always trading with the primary trend.

2) You may already do this, but wait for multiple signs of confirmation on your countertrend trades. For example, I look for the divergence of price with two oscillators, a Bollinger Band touch (then rejection) AND a specific reversal candle. Mutliple confirmation good idea for any trading strategy, but I think it's even more important when you're trying to buck the trend.


Quoting soso_beton
Hi all,

I've been posting mostly on Moneytec but I think I'll move here, I like it more, more friendlier...

For almost 3 months now I have been trying to trade against the trend, basically waiting for momentum to decrease and the build up my position against the trend. This worked wonders until 2-3 weeks ago since basically there was only one direction and that was shorting the dollar everywhere. Everytime the momentum seemed to slow I thought at least a correction would take place. So I would start building up my position. No way, just spiked even further, taking me out everytime.

My live account decreased by 25% - I started live trading at the beginning of April, after taking my demo account up 40% using only conter trend trading.

At this point I'm thinking to ditch this system completely; I know what it is being said about a new system to not ditch it at the first lost trades but I am really questioning the whole concept of counter trend trading after watching the last 3 weeks movement against the dollar. Just open a weekely chart and see 3 nice and clear bulish candles.

Currently I'm on hold, no more live trades, till I decide what to do next. What do you people think of counter trend trading? Is anyone in here successfully trading against the trend in a consistent manner?

Thanks,
-soso
  • #8
  • May 5, 2006 10:19am May 5, 2006 10:19am
Quoting bonmeister
Soso,


Just my opinion, but you should always have more than one trading strategy. One for trending markets and one for range-bound markets. Maybe one for long term trades and one for intraday trades. You get the picture.

if you wish to trade during times when the market behaves as it is presently, you should find a system (or better yet a model) that you can profit from.

Don't discard your present system just because it isn't working as of lately. Save it for the times when the market is ripe for using it. Think of it as another club in your bag of trading tools.
Hope this helps.
Just my opinion also, but I agree with bonmeister.

The past few weeks price has shown a very strong trend. You can't beat price because it is what it is. I wouldn't think a counter trend system would work in strongly trending market, at least until price shows some sort of reversal, which it hasn't done for a lot of pairs lately.

I would think that if your system doesn't work in this type market, then stay out of the market until you see signs of a change. Or, let your system rest a while and try something else. Go with the flow. If you can't beat 'um, join 'um, so to speak.

Just my two cents.
Jimmy
  • #9
  • May 5, 2006 11:00am May 5, 2006 11:00am
Don't dump the cow just because it is hurt for the time being. Find another function it can still do.

Check which other pairs that are presently following the behaviour to the pair you were winning before. Example if you were trading EUR/USD, now see if EUR/GBP or EUR/JPY is now following that behaviour of your previous winning strategy. I bet it you had switch to Eur/JPY you would have made good money
with your old style.

Chinese saying " you sell summer clothings in summer " if they don't sell in winter, sell other thicker clothings. But follow your same style of selling. "
  • #10
  • May 5, 2006 11:15am May 5, 2006 11:15am
One other thing: I agree with the idea of trading 2 or more systems that have different rules/concepts.

I'm not so convinced, however, by the idea that you just "stop trading" one of your systems when market conditions aren't favorable. That's much easier said than done. The market simply doesn't tell us when it changes (trending to ranging, volatile to consolidating, etc.). I'm more inclined to design very selective systems that don't get damaged too badly when market conditions aren't favorable. (In other words, have rules/measurements that prevent repetitive losses and design systems that only trade rare, very high probability setups to start with.)


Quoting FXLogic
My 2 cents, for whatever it's worth...

I, too, like to be a contrarian at times and trade against the intermediate trend. My current system hasn't been thoroughly tested yet, but looks promising and has two main concepts:

1) Only trade in the direction of the trend in a higher time frame. For example, if you trade 1 hour charts, trade in the direction of the 4-hour timeframe. You'll be waiting for retracements/reversals/countertrends on the 1 hour, but will still be going with the longer-term trend. In Dow Theory terms, you're always trading with the primary trend.

2) You may already do this, but wait for multiple signs of confirmation on your countertrend trades. For example, I look for the divergence of price with two oscillators, a Bollinger Band touch (then rejection) AND a specific reversal candle. Mutliple confirmation good idea for any trading strategy, but I think it's even more important when you're trying to buck the trend.
  • #11
  • May 5, 2006 11:22am May 5, 2006 11:22am
I agree with you here, If you have a system in place, you have to take all the trade signals it presents. There is just no way to know which one will be the big profit trade... Especially if the trade is coming from choppy conditions.
Scott



Quoting FXLogic
One other thing: I agree with the idea of trading 2 or more systems that have different rules/concepts.

I'm not so convinced, however, by the idea that you just "stop trading" one of your systems when market conditions aren't favorable. That's much easier said than done. The market simply doesn't tell us when it changes (trending to ranging, volatile to consolidating, etc.). I'm more inclined to design very selective systems that don't get damaged too badly when market conditions aren't favorable. (In other words, have rules/measurements that prevent repetitive losses and design systems that only trade rare, very high probability setups to start with.)
  • #12
  • Edited 11:46am May 5, 2006 11:27am | Edited 11:46am
Agree with Bemac !

What time frames are you using ?

Why not trade againt the trend on your lower time frame, though with it on your higher - Trade against the 1 min trend, in the direction of 5 min / 30 min. It is a lot easier than trying to pick tops and bottoms.

Check out either of Alexander Elder's books, Trading For A Living and Come Into My Trading Room. Both explain his triple screen system, which is what the above suggestion is. In any event, reading one of these is essential reading, whatever system you intend to trade.

His 'Triple Screen' system in a nutshell suggests picking 3 time frames, for example:

Higher 30 min - Trade only in direction of this trend, if present.

Indermediate 5 min - Entries are pull backs from the 30 min trend.

Lower 1 min - Used to pin point entries discovered on the 5 min.

Entries are filtered with various indicators, especially divergence.


Quoting Bemac
Conclusion:

Use the same methodology you have been but try it WITH the trend.
  • #13
  • May 5, 2006 11:41am May 5, 2006 11:41am
Elder - Triple Screen System (See Attachement).

This is an extract from 'Come Into My Trading Room'

Ideal for FX trading.
Attached File(s)
File Type: pdf Elder Alexander - Triple Screen.pdf   203 KB | 7,728 downloads
  • #14
  • May 5, 2006 11:45am May 5, 2006 11:45am
Quoting hagadol
Elder - Triple Screen System (See Attachement).

This is an extract from 'Come Into My Trading Room'

Ideal for FX trading.
Well, you all know what I think of Dr. Elder....I would recommend the triple screen HIGHlY.
Capital Preservation is key to long term wealth accumulation
  • #15
  • Edited 11:56am May 5, 2006 11:48am | Edited 11:56am
Yeh, both TFAL and CIMTR are great books. He has just released a new one, which is ala the 'Market Wizard' books where it contains multiple interviews with experienced traders:

'Entries & Exits':

http://eu.wiley.com/WileyCDA/WileyTi...471678058.html

Sample chapter:

http://media.wiley.com/product_data/...0471678058.pdf


Quoting MuddBuddha
Well, you all know what I think of Dr. Elder....I would recommend the triple screen HIGHlY.
  • #16
  • May 5, 2006 12:21pm May 5, 2006 12:21pm
Wow! So many great responses in such a short time. I thought Moneytec is the mother of all fx forums but it seems FF is the grandma .

The triple screen method looks interesting, until now I was using 2 timeframes e.g. entry & exit on 1H chart while taking into consideration support/resistance of daily chart.

Thanks everyone for your suggestions!

-soso
-soso
  • #17
  • Oct 8, 2008 8:19am Oct 8, 2008 8:19am
Contrarian investing is a strategy you usually hear about people applying from a valuation point of view rather than a price only or trend following point of view. A contrarian valuation oriented strategy would be one that measures expected returns on assets and waits for spreads to widen out or tighten in to an extreme. When they do, a contrarian investor would look to capture profits from the expected return returning towards its mean or norm by taking a long position in one asset (the cheap one) and a short position in the other.

I think it was Michael Covel who entereted a quote in one of his books -- probably, "Trend Following" -- where he said something to the effect of, "You don't hear about many books being published with the title, 'How to Make Billions in Counter Trend Traing'."

Ngawang
  • #18
  • Oct 19, 2008 1:38pm Oct 19, 2008 1:38pm
Quoting soso_beton
Wow! So many great responses in such a short time. I thought Moneytec is the mother of all fx forums but it seems FF is the grandma .

The triple screen method looks interesting, until now I was using 2 timeframes e.g. entry & exit on 1H chart while taking into consideration support/resistance of daily chart.

Thanks everyone for your suggestions!

-soso
Could you kindly tell us the ratio of successful trades to total trades leading to a drawdwon of 27.5% (which is denoted in $ terms)? You may like to balance your bets in the times when your method is more successful Vs when it is not producing expected results.
The Thief of Wall Street
  • #19
  • Oct 19, 2008 3:11pm Oct 19, 2008 3:11pm
Quoting Chicky
Could you kindly tell us the ratio of successful trades to total trades leading to a drawdwon of 27.5% (which is denoted in $ terms)? You may like to balance your bets in the times when your method is more successful Vs when it is not producing expected results.
Soso's not made a post in over 17 months so don't hold your breath waiting for a reply.....

M
  • #20
  • Last Post: Oct 22, 2008 3:31am Oct 22, 2008 3:31am
Quoting soso_beton
Hi all,

I've been posting mostly on Moneytec but I think I'll move here, I like it more, more friendlier...

For almost 3 months now I have been trying to trade against the trend, basically waiting for momentum to decrease and the build up my position against the trend. This worked wonders until 2-3 weeks ago since basically there was only one direction and that was shorting the dollar everywhere. Everytime the momentum seemed to slow I thought at least a correction would take place. So I would start building up my position. No way, just spiked even further, taking me out everytime.

My live account decreased by 25% - I started live trading at the beginning of April, after taking my demo account up 40% using only conter trend trading.

At this point I'm thinking to ditch this system completely; I know what it is being said about a new system to not ditch it at the first lost trades but I am really questioning the whole concept of counter trend trading after watching the last 3 weeks movement against the dollar. Just open a weekely chart and see 3 nice and clear bulish candles.

Currently I'm on hold, no more live trades, till I decide what to do next. What do you people think of counter trend trading? Is anyone in here successfully trading against the trend in a consistent manner?

Thanks,
-soso

Oh!i's interesting strategy i've never
tryed it before but may be when I will practise a lot and will be professional I can to use it...and now I have to learn a lot to start!!!
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