Reversals vs. CounterTrend Trade | Forex Factory

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Reversals vs. CounterTrend Trade

  • #1
  • First Post: Apr 11, 2014 8:12am Apr 11, 2014 8:12am
Hello,

Trying to practice my method of buying reversals.

Tells me which makes sense.

If trend is down at the moment and support is reached should I buy,

1. Buy the support after price comes and turns on the next candle. Would this not be countertrend trading.?

2. Wait for support to develop some small support and resistance range, and then buy the break out of the resistance?

I am having trouble between understanding how buying a reversal is not the same as countertrend trading.
  • #2
  • Apr 12, 2014 4:53am Apr 12, 2014 4:53am
Here is how I see the difference:
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  • #3
  • Apr 12, 2014 10:08am Apr 12, 2014 10:08am
The question attracted my attention.

I only look out for A. With Trend, B. Counter Trend; however with Multiple Time Frame Analysis it is possible to attempt for C. Reversal.

A. Trade direction based on Price Action
B. Entry and Exit based on MTFA Fib points
C. Counter trade based on MTFA Fib points
D. We can only execute a trade which has potential, now whether the counter trade is turning to a reversal - we do not have any hand on this, A good counter trend can become a trend reversal.

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  • #4
  • Apr 12, 2014 11:45am Apr 12, 2014 11:45am
It's quite hard to determine whatever you really trade with trend or countertrend, because on daily time frame it can look that you go with trend while on 15M time frame your position is countertrend. So try to guess if daily time frame trend is right or 15M trend is true direction of the price.

I think that Sonic R. System is based on multi time frame analysis where traders try to go with daily time frame and catch lower time frame (H1, M15, M30) reversals. Take a look at the system, you'll find some interesting market entry tactics.
  • #5
  • Apr 12, 2014 12:50pm Apr 12, 2014 12:50pm
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By trying to find reversals what you are doing is trying to identify the change in orderflow or price. The easiest way is to find a trend, wait for the pullback and look for the reversal signal to reverse BACK into the trend. There are a number of ways to do so but I would definately study reversal candle setups. Read your charts and just wait for an engulfing, dark cloud, piercing, harami or 3-4 candle/bar reversal setup on your charts and enter back into the flow or price. I have attached a couple charts to show you what it looks like. The chart gives a perfect example of engulfing on a daily chart and then a few different setups on the a smaller TF. Both EU
Enter Signature
  • #6
  • Apr 12, 2014 4:48pm Apr 12, 2014 4:48pm
Quoting goodoboy
Hello, Trying to practice my method of buying reversals. Tells me which makes sense. If trend is down at the moment and support is reached should I buy, 1. Buy the support after price comes and turns on the next candle. Would this not be countertrend trading.? 2. Wait for support to develop some small support and resistance range, and then buy the break out of the resistance? I am having trouble between understanding how buying a reversal is not the same as countertrend trading.
hey Good Boy, I dont think you understand what a trend(support & resistance) means however I wish to help you out maybe if I can, but for sure reccomend a course maybe on PA, will really help a lot more - better than us knuckle heads on FF

FX we dont just buy reversal, we buy and sell reversals. But when you say reversal I assume you mean the pattern confirmation or price formation within a larger time span of price data. You see what is a trend - simply the overall direction of certain time span of price data on a chart. 6 months looking from left to right which way does it go?
That being said...
The term, counter trend trading is more so just using a reversal confirmation or formation to trade against the overall direction(trend) relative to that certain time period of price data.
All posts are my personal opinion
  • #7
  • Edited 5:18pm Apr 12, 2014 4:52pm | Edited 5:18pm
Harmonics are good for buying/selling corrections.... Fibonacci also. Check back on this in a month and see the results.

FOR EXAMPLE .... Current AUD/NZD Daily Chart

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  • #8
  • Apr 12, 2014 5:09pm Apr 12, 2014 5:09pm
Quoting rekon67
The question attracted my attention. I only look out for A. With Trend, B. Counter Trend; however with Multiple Time Frame Analysis it is possible to attempt for C. Reversal. A. Trade direction based on Price Action B. Entry and Exit based on MTFA Fib points C. Counter trade based on MTFA Fib points D. We can only execute a trade which has potential, now whether the counter trade is turning to a reversal - we do not have any hand on this, A good counter trend can become a trend reversal. {image}
IMO counter trend trades are only safe on larger timeframes, as long as you pick a good entry, the profit potential is there and the stops can be tight, again provided you have picked the correct entry, lower timeframes have stung me so much in the past that i steer clear.

I like that you use fibs like me though we have style lol
  • #9
  • Apr 12, 2014 11:33pm Apr 12, 2014 11:33pm
Quoting MrBurns
{quote} IMO counter trend trades are only safe on larger timeframes, as long as you pick a good entry, the profit potential is there and the stops can be tight, again provided you have picked the correct entry, lower timeframes have stung me so much in the past that i steer clear. I like that you use fibs like me though we have style lol
It is a very good example you posted, I have not seen using the 86.0 fib level, can u pls explain? TY.
  • #10
  • Apr 13, 2014 4:00am Apr 13, 2014 4:00am
Quoting rekon67
{quote} It is a very good example you posted, I have not seen using the 86.0 fib level, can u pls explain? TY.
Thank you very much! Well the idea of the retracement entry for counter trend trading is this ....

When picking the bottom, wait for the BUY signal, this may take a while to play out buy the rush of BUYERS at a certain level putting in new highs, shows thats this is a good price for current market conditions.

The entry at 86% retracement of that leg up is simply 86% a better price than the last high, and holds excellent stop loss potential. Its a good risk managment entry and normally shows a lot of conviction.

Search my thread Release the hounds ... I talk about manipulation and this is what its is, its hard to explain when typing id love to do a video or something.
  • #11
  • Apr 13, 2014 5:28am Apr 13, 2014 5:28am
Quoting MrBurns
{quote} Thank you very much! Well the idea of the retracement entry for counter trend trading is this .... When picking the bottom, wait for the BUY signal, this may take a while to play out buy the rush of BUYERS at a certain level putting in new highs, shows thats this is a good price for current market conditions. The entry at 86% retracement of that leg up is simply 86% a better price than the last high, and holds excellent stop loss potential. Its a good risk managment entry and normally shows a lot of conviction. Search my thread Release the...
Interesting indeed. I will give a try to these fib levels. Thanks.
  • #12
  • Apr 13, 2014 7:00am Apr 13, 2014 7:00am
Quoting rekon67
{quote} Interesting indeed. I will give a try to these fib levels. Thanks.

The 86% level is not always gospel you take a look below and you can use even smaller timeframes to determine the retracement....using harmonics and fibs..

1. The Initial Run up is the Daily Buy Signal so we expect retracement.
2. Price fails to go higher at 61.8 retracement from sell off lows. Enter SHORT.
3. As price has retraced to the 61.8 level SHORT we can expect the 161.8 extension as TP. This sits at the 86% retracement of the Initial Daily Buy signal... do you still follow?

TP HERE

4. Wait for BUY SIGNAL (wait for break of H4 highs), and wait for retracement.
5. Enter Long @ previous resistance becomes support.

If you are gutsy and can see the pattern before the price hits it, then you can take the 86% entry on this chart but id wait for the BUY signal first and then you get a good entry still with good stop loss potential.



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A lot of people dismiss FIbonacci but it works and price will hit these levels if you trade correctly
  • #13
  • Apr 13, 2014 7:12am Apr 13, 2014 7:12am
The expected retracement (entry)/ extension (TP) targets are as follows..

38% - We can expect 161.8 Extension with good monentum as a target.
50% - 61.8% - We can expect 161.8 extension as a target.
78.6 - We can expect 1.27 Extension as a target.
86% we can expect 1.18 Extension as a target ( however these tend to be see at trend changing moments so the 1.618 extension can be expected once the trend takes hold)

Its confusing at first but when you play around with it it becomes gold dust. A bit like the matrix lol maybe not
  • #14
  • Apr 13, 2014 9:37am Apr 13, 2014 9:37am
Quoting ARTjoMS
Here is how I see the difference: {image}
Thanks for your example.

But it is still a bit confusing. Because from your picture, buying the while the trend is downward is coutertrend. Buying when the trend is down is the same buying the reversal. Countertrend and reversal is the same.

Maybe I am confused.
  • #15
  • Apr 13, 2014 9:38am Apr 13, 2014 9:38am
Quoting goodoboy
{quote} Thanks for your example. But it is still a bit confusing. Because from your picture, buying the while the trend is downward is coutertrend. Buying when the trend is down is the same buying the reversal. Countertrend and reversal is the same. Maybe I am confused.
Not a problem at all, i am here to learn just as you are mate Yes the overall trend may be down but where is the price going today? Its question of wanting to mke money today/this week or in 3 months time. Smaller timeframes like the 5 minute and 15 minute are crap for this but Id trade this kind of way on the H1/4 and Daily any time of the week if the setup is there. Horses for course i guess...
  • #16
  • Apr 13, 2014 9:41am Apr 13, 2014 9:41am
Quoting rekon67
The question attracted my attention. I only look out for A. With Trend, B. Counter Trend; however with Multiple Time Frame Analysis it is possible to attempt for C. Reversal. A. Trade direction based on Price Action B. Entry and Exit based on MTFA Fib points C. Counter trade based on MTFA Fib points D. We can only execute a trade which has potential, now whether the counter trade is turning to a reversal - we do not have any hand on this, A good counter trend can become a trend reversal. {image}
Thanks for the comments.

So in other words, the simple approach is to the buy support with enough evidence and let the market make the decision on rather to reverse the current trend or continue.

I just here people say don't counter trend trade, trade the trend. But the when support is reached we buy in hope that the reversal occur. So in a sense, we are counter trend trading with evidence.
  • #17
  • Apr 13, 2014 9:48am Apr 13, 2014 9:48am
Quoting goodoboy
{quote} Thanks for the comments. So in other words, the simple approach is to the buy support with enough evidence and let the market make the decision on rather to reverse the current trend or continue. I just here people say don't counter trend trade, trade the trend. But the when support is reached we buy in hope that the reversal occur. So in a sense, we are counter trend trading with evidence.
Exactly

As long as we have sensible stops, reasonable and achievable targets, evidence of support or resistance at a certain price then yes we are

If your buying/selling a correction with a potential of over 100 pips then id say that it is a good trade. Just means you may have to manage it, but i like managing trades, thats how i trade myself, others like to set and forget, its just about your own style of trading i guess, nothing is perfect.
  • #18
  • Apr 13, 2014 9:53am Apr 13, 2014 9:53am
Quoting Rtm
{quote} hey Good Boy, I dont think you understand what a trend(support & resistance) means however I wish to help you out maybe if I can, but for sure reccomend a course maybe on PA, will really help a lot more - better than us knuckle heads on FF FX we dont just buy reversal, we buy and sell reversals. But when you say reversal I assume you mean the pattern confirmation or price formation within a larger time span of price data. You see what is a trend - simply the overall direction of certain time span of price data on a chart. 6 months looking...
Yes, I do struggle with trend.

Thanks for help. What does PA mean?

I could be wrong but the way I look at trend is determine trend of the moment. By this I mean, I look at my 15 min chart in the morning (i day trade only), if the direction of the candles on the chart is downward, then the trend of the moment is down. Vice versa thinking if the candles point up in the morning.

If the trend on the 15 min chart in the morning is down, I look for a resistance to short. If the trend on the 15 min chart in the morning is up, I look for support to buy long.

This thinking could be wrong, I am still finding my way.
  • #19
  • Apr 13, 2014 9:57am Apr 13, 2014 9:57am
Quoting MrBurns
{quote} Exactly As long as we have sensible stops, reasonable and achievable targets, evidence of support or resistance at a certain price then yes we are If your buying/selling a correction with a potential of over 100 pips then id say that it is a good trade. Just means you may have to manage it, but i like managing trades, thats how i trade myself, others like to set and forget, its just about your own style of trading i guess, nothing is perfect.
Exactly my point. Countertrend trading with full evidence and manageable stops is decent risk. I trade the ES, but the concept is the same.

But I notice my most losing days (paper trading) is when I trade against the trend in hopes of a reversal. Then I beat myself up for not trading with the trend of that day.
  • #20
  • Apr 13, 2014 10:00am Apr 13, 2014 10:00am
Quoting goodoboy
{quote} Exactly my point. Countertrend trading with full evidence and manageable stops is decent risk. I trade the ES, but the concept is the same. But I notice my most losing days (paper trading) is when I trade against the trend in hopes of a reversal. Then I beat myself up for not trading with the trend of that day.
Thats why i only tend to trade this kind of setup on a H4 or Daily basis as there is far too much noise on lower time frames inlcuding swings from news. Larger timeframes tend to eventually hold their technical bias whatever the news outcome. Ive been buggered by price action trading these setups on 15 minute and 5 minute that i hardly ever look at them now
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