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Are you a trend trader or a counter-trend trader? 29 replies

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  • #581
  • Feb 5, 2016 4:39pm Feb 5, 2016 4:39pm
Quoting ebitalebi
{quote} Nice example. I always trade the trends. I have some rules for myself that can be useful for others too: 1- I use Fibonacci retracement and do not take the signals which are beyond 78.6. 2- I use a CCI 8 to show me whether the retracement is valid or not. (if the signal is very good I may ignore this read the rest for more info). If we are in a down trend and we have a CCI over or near 100 level the retracement is valid if it couldn't force the CCI to go above the 0 line the retracement is too weak. 3- the signal bar should show me the retracement...
Sometimes I donīt understand people. Trading the trends is much easier and profitable than any other way (it is my opinion until I am proven wrong).
I guess many traders operate against the trend because if they catch the new trend thenthey will get a lot of pips with lower risk, and it is truth...the only problem is they are right maybe 10% of the time, usually trends last for a while, so they get burned once and again hoping their luck changes...and even worse they keep moving the SL hoping luck changes.
Follow trends, buy cheap and sell expensive, thatīs it...oh, and set the SL in the right place (donīt be so cheap, but donīt be so loose either).
  • #582
  • Feb 5, 2016 5:52pm Feb 5, 2016 5:52pm
Quoting cat
Let me show you this, because this is exactly the kind of day that most people get burned - the easiest day of all to make money. This is a 3 minute Dax chart from the 2nd of this month, a day of strong selling, and yet guess what, most traders, even experienced ones, will attempt to buy into a market that is doing this, sad, but true. The reasons traders do this I've written about above so I won't repeat them here, but believe me they do. What I'm showing here is a section of the 3 minute chart showing the typical stair formation of a trending...
Good example, and a look at the zigzag of the same trend indicates the challenges for the beginner - which lower high should I bet on without getting whipsawed? Not so easy without some method. And while 61.8% retracements may add some comfort, they don't happen in faster trends. And what if it continues up to 76.4% or even a double lower high before continuing down?

So some method is needed that works in trends of all speeds and structures. The book by Adam Grimes mentioned above has a whole chapter about these and other setups, called Practical Trading Templates.
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  • #583
  • Feb 5, 2016 8:22pm Feb 5, 2016 8:22pm
Quoting medici
{quote} Good example, and a look at the zigzag of the same trend indicates the challenges for the beginner - which lower high should I bet on without getting whipsawed? Not so easy without some method. And while 61.8% retracements may add some comfort, they don't happen in faster trends. And what if it continues up to 76.4% or even a double lower high before continuing down? So some method is needed that works in trends of all speeds and structures. The book by Adam Grimes mentioned above has a whole chapter about these and other setups,...
I agree with cat to always trade with the trend, always as in 100% - there's no reason not to. The catch is how we define trend in the context of our trading method ? It means different things to different traders with their individual methods.

As to medici's question, there's very little quality material that delve specifically on this matter and very little discussion on it if any at all. To me this is the crux of trading - the 'end-game' chess puzzle that I mentioned in my earlier post which every trader must come up with some sort of solution which must address this in detail all the aspects of trading from a probabilistic pov. We must be able to stare at the eye of the storm, not look away which many traders succumb to unfortunately but be challenged to maintain a rationale mind and devise a comprehensive solution. That's what the trading journey of research, discovery and knowledge is all about, and you got to think outside the box creative approaches yet always remain within reasonable logic supported by empirical evidence.

If it's that difficult to pinpoint a trend retracement, how more difficult is it to pinpoint the trend reversal itself if it's even possible at all ?
  • #584
  • Feb 6, 2016 1:34am Feb 6, 2016 1:34am
Quoting skyway
{quote} I agree with cat to always trade with the trend, always as in 100% - there's no reason not to. The catch is how we define trend in the context of our trading method ? It means different things to different traders with their individual methods. As to medici's question, there's very little quality material that delve specifically on this matter and very little discussion on it if any at all. To me this is the crux of trading - the 'end-game' chess puzzle that I mentioned in my earlier post which every trader must come up with some sort of...
Although it seems that different traders use different measures to find a trend, I believe most of the methods for finding a trend is more or less use similar concepts:
1- A trend (for example up trend) makes higher lows and you can draw a trend line to follow that.
2- A trend has momentum. you can use ADX for example to show you the momentum. That is why faster MAs cross slower MAs always. because when a trend starts its behavior is beyond normal (Slow moving average). we call it moving averages expansion. it means the price is behaving so much different than it used to before. Also you can use other oscillators like RSI to find a trend but I prefer the ADX and raw chart higher low method.

so that is how to find a trend. (if you add the higher time frames direction filter your trends will be more valid but you will certainly miss some of the good moves)

Now you should understand that traders don't have access to time machines which can predict the future. You should decide on what is available from past data. This is a numbers and probabilities game. You can have all of the above signs and take the trade and suddenly it goes against you. but this scenario is less probable.

Another point is a bitter paradox in the market. If you enter soon you can ride a trend from the beginning up to the end. But the sad point is if it is soon it may be a false signal too. On the other hand if the signal is more valid after the trend proved that it respects its trend line, it may be too late, you enter and the trend is over. However, from statistical point of view I prefer the second approach. Think of the market as a train. I prefer to enter a moving train to go from A to B than to enter a stopped train.
and about counter trading: why should you enter a train that is moving from A to B and expect it to go from B to A?

And to answer your last question: pinpointing entries in a trend. I believe the safest entry points are those that show us that price came near the trend line (or slower moving average) and respected it and then started to go back to its main direction (if there were an important S/R it became even stronger). enter as soon as you find these areas and put your stop beyond the trend line or moving average. Of course you may lose some fast moves which do not touch the trend line. But I don't care remember what I said about paradox, you cannot enter too soon and have the same winning rate when entering later with more confirmed signals.

I think it's very simple. Why do we always try to make things complex for ourselves?
  • #585
  • Feb 6, 2016 5:17am Feb 6, 2016 5:17am
Quoting medici
{quote} Good example, and a look at the zigzag of the same trend indicates the challenges for the beginner - which lower high should I bet on without getting whipsawed? Not so easy without some method. And while 61.8% retracements may add some comfort, they don't happen in faster trends. And what if it continues up to 76.4% or even a double lower high before continuing down? So some method is needed that works in trends of all speeds and structures. The book by Adam Grimes mentioned above has a whole chapter about these and other setups,...
Exactly medici, as always you identify the key points and ask the relevant questions. As you say, one must have a method - no point in waiting for the price to retrace to a fib level and then not having the slightest idea what to do when it does. Any trader has to have a method for knowing when to open a trade and when not to, of knowing when the price is likely to fall way/rise and when it is not. This is something I spent a great deal of time working on, and it is not something I would share the finer details of on an open forum such as this, no matter how much I want to help others. and I think the same applies to any experienced trader. The chart posted above was just to demonstrate to people viewing this thread who are looking for the most effective way to trade, how trading with the trend on trending days is the way to go. It can be seen clearly that the 61 and 76 fibs were important retrace levels all the way down, and the task for every trader is to discover a method which gets them into the market at the right moment a majority of the time. It is not easy, far from it, but it can be done. The question is, how long have people got to acquire the knowledge to do this? If people are in a hurry, they'll never find it. If however they are willing to give it as long as it takes, then it will come.

If someone completely new to trading came to me and asked me what the six best pieces of advice I could offer would be , it would be these -

 

  1. Find momentum, wait for the price to pull back, and get in with this momentum on your side. Do not trade against it.
  2. Determine support and resistance
  3. Sell high and Buy low
  4. Be prepared to give it as long as it takes.
  5. Be disciplined
  6. Learn to think like a trader.

ps - I have friends, good traders, who have already wiped out all of January's profits in just a few days due to lack of discipline and trading against the trend.

Enjoy the weekend all, but not too much , because for me the weekends are not just about being with the family, though that is important, they are also a time for chart work - sharpening your sword!!

  • #586
  • Feb 6, 2016 5:22am Feb 6, 2016 5:22am
Quoting skyway
{quote} I agree with cat to always trade with the trend, always as in 100% - there's no reason not to. The catch is how we define trend in the context of our trading method ? It means different things to different traders with their individual methods. As to medici's question, there's very little quality material that delve specifically on this matter and very little discussion on it if any at all. To me this is the crux of trading - the 'end-game' chess puzzle that I mentioned in my earlier post which every trader must come up with...
[/b]

Great post skyway!! Lots of good points to take away, and perhaps someone would like to have a stab at how to define a trend?
  • #587
  • Feb 6, 2016 6:02am Feb 6, 2016 6:02am
Quoting cat
and perhaps someone would like to have a stab at how to define a trend?
]

... and that's the $64,000 question
  • #588
  • Edited 12:40pm Feb 6, 2016 7:22am | Edited 12:40pm
Quoting cat
Be prepared to give it as long as it takes.
Thank you And some excellent advice

This point stands out to me. It's the most important thing, I believe - commitment - if you are going to make it as a trader.

To me weekends are about putting what I do in a larger context - that bigger perspective you mentioned earlier, the one where operating metaphors can be of help.

This morning I've reread Jack Schwager's interview with Mark D. Cook in Stock Market Wizards. Cook is reputed to be the largest (in terms of position size) day trader in the world.

It took Cook five years to become profitable, and along the way he lost, at one point, $500k - money that he didn't have, as it was a margined trade. Personal bankruptcy could have been an option, but Cook said no to that for the reason that it would mean, psychologically, giving up his trading career. It takes some character to rebound from that.

When asked for advice for aspiring traders, Cook's number one point is "Approach trading as a vocation, not a hobby." He gives the example of somebody he trained, who failed, and explains the failure by "..trading wasn't a vocation to him; it was a hobby, and hobbies cost you money."
  • #589
  • Feb 6, 2016 7:32am Feb 6, 2016 7:32am
Quoting cat
{quote}[/b] and perhaps someone would like to have a stab at how to define a trend?
force
Time hides Nothing
  • #590
  • Edited 8:53am Feb 6, 2016 7:53am | Edited 8:53am
Quoting skyway
{quote}The catch is how we define trend in the context of our trading method ? It means different things to different traders with their individual methods.

We must be able to stare at the eye of the storm, not look away which many traders succumb to unfortunately but be challenged to maintain a rationale mind and devise a comprehensive solution. That's what the trading journey of research, discovery and knowledge is all about, and you got to think outside the box creative approaches yet always remain within reasonable logic supported...
Very wise words!

Without the context of a trading method, defining "trend" doesn't make sense.

And to only trade "trends" that conform to how we anticipate them to look is fraught with problems. You may miss out on moves, and, in addition to a missed opportunity, do stupid things out of the frustration caused. Or you may enter a "trend" which conforms to your expectations, only to get whipsawed over and over again. As a wise man said "...anticipators may have problems with risk control..."

The challenge, then, is to find the comprehensive solution (excellent point!). For example, what comprehensive method would allow you to trade both the chart posted by Cat, and the chart below, without anticipation or discretion?
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  • #591
  • Feb 6, 2016 9:27am Feb 6, 2016 9:27am
Quoting medici
{quote} Very wise words! Without the context of a trading method, defining "trend" doesn't make sense. And to only trade "trends" that conform to how we anticipate them to look is fraught with problems. You may miss out on moves, and, in addition to a missed opportunity, do stupid things out of the frustration caused. Or you may enter a "trend" which conforms to your expectations, only to get whipsawed over and over again. As a wise man said "...anticipators may have problems with risk control..." The challenge, then, is to find the comprehensive...
What strikes me straight away, without further lengthy perusal, are the levels at 9400 - therefore I would note the ..00 and ..50 levels and the flags or patterns surrounding them. Those are my immediate thoughts within a few seconds of seeing that chart. Feel free to throw stale fruit at me.
every Saint has a past. Every Sinner has a Future
  • #592
  • Feb 6, 2016 9:37am Feb 6, 2016 9:37am
Quoting turnip15
{quote} What strikes me straight away, without further lengthy perusal, are the levels at 9400 - therefore I would note the ..00 and ..50 levels and the flags or patterns surrounding them. Those are my immediate thoughts within a few seconds of seeing that chart. Feel free to throw stale fruit at me.
Haha But, yes, that sounds more like something discretionary than a comprehensive methodology. Note also that a methodology for both charts was asked for.
  • #593
  • Feb 6, 2016 9:39am Feb 6, 2016 9:39am
As an aside -I have taken an interest in the Dax on one minute time frame and still see patterns I used on higher time frames playing out on the lower: Big round numbers and the 50's;support/resistance; some TA like Pins for example;useful moving averages to highlight the wave motion? of price. In short, possibly useful stuff but the ability to pick your moment (wait) to trade, and knowing why, still plays an important part.
every Saint has a past. Every Sinner has a Future
  • #594
  • Edited Feb 7, 2016 9:30am Feb 6, 2016 10:45am | Edited Feb 7, 2016 9:30am
Quoting tasoss21
Cat, Thank you for the great thread. It's been a pleasure to read through all the great advice and understand the different methods that traders are using. What I've seen throughout this thread is successful trades with great descriptions but is there a possibility you can show an example of a losing trade you had and your reasoning for getting into the trade?
As promised, here's my penultimate trade on Tuesday 2nd. I remember posting on the Carpe Diem Dax/Dow thread in the morning that Tuesdays usually say big price movements, and I wasn't wrong.

I've attached two charts, one showing a close up of the candles, and the other showing the whole aspect. I took both entires you see, the lower losing one, and the higher winning trade, off of this 1m chart.

My mistake, as always, was immediately apparent once my SL was hit, a SL of 13 which placed it above the Bollinger. This trade was probably a trade I wouldn't have taken in different circumstances, but it had been an excellent day, and to be honest, I felt a bit invincible - one does when one is doing well!

What made me take this trade is that it was falling away from the 100sma ( dotted ) and when I saw the powerful shooting star candle pattern, I sold. By the way, I had exited the previous sell trade when the double bottom was confirmed by the candles breaking back above the 20ema ( red/blue ) What added to this exit was the fact that the price had fallen quite a long way below the 200ema, and I know that when it gets this far, the probability of a pullback to it are high. ( I would never buy at this point - just wait for the next sell entry in a market where the momentum is so obviously still down. If it is a change of direction, I will wait for confirmation of such )

Another mistake was that I did not have a signal from my moving average formation ( not shown here ), neither had I been able to draw in a trend line. Actually though, it wasn't a bad trade, some things were right about it ( falling away from a major moving average; trading with the trend; excellent sell signal candle ) but the timing was wrong. Anyway, I was taken out very quickly, so it was painless, and I had a couple of minutes to reset the trading ticket and wait to see what the price would do when it reached the 200ema ( purple ) As soon as the 16.34 candle closed as a powerful looking shooting star, right beneath the 200ema, I did not hesitate to hit the sell button again. I now had everything I had before, plus a trend line, and final resistance - there was no more resistance above this on this time frame. I've also shown another good entry candle, again a shooting star, which I would have taken had I not gone so early, though this was lower down so would have required a bigger stop loss. Actually, the candle after the one I took is also an excellent candle, so I'm sure I would have taken this one had I missed the first one. ( I always wait for candles to close before pulling the trigger )

Because my entry was so high ( sell high/ Buy low ) I stayed with this one until it hit 9,500,( I felt that at that time of the evening on the Dax, such a round number would be a sensible place to exit, even though there was actually no support there on any time frame that I could see ) and broke back up above my 20ema having first put in a lower low, which was confirmed by MACD diversion. This trade was worth 75 pips, minus of course the 13 from the loss.

ps - If you can get a trend line in, they don't always have to be crossed before taking a trade, the fact that there is one can be enough as the example here shows., especially on a trade such as this trading away from a major moving average with the trend.
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  • #595
  • Feb 6, 2016 2:54pm Feb 6, 2016 2:54pm
Quoting medici
{quote} Haha But, yes, that sounds more like something discretionary than a comprehensive methodology. Note also that a methodology for both charts was asked for.
I think both charts can be traded just the same way. We have momentum in both of them, lower highs and higher lows. that is all we need to call it a trend.

I think we should ask a better question here: what is your definition of a good setup? which of the following belongs to you?
1- A good setup should give me three times of my stop loss.
2- A good setup should give me the chance to move my stop to break even.

then you should ask yourself what is your exit strategy? When are you going to exit a trade? Should you let a winning trade turn into a losing one?

Using a simple trending method with moving averages cross and oscillators to show you oversold and overbought locations + some candlestick patterns like pinbars (this is optional) you could easily win 13 trades out of possible 14 in both charts.

If you want me to share a comprehensive method here I am willing to but I think we are discussing about core points to help new traders understand something and learn from other experienced traders (by traders for traders). If "Cat" agrees we can expand this discussion about what are the best ways to define a trend, find a trend, and trade a trend in detail and with examples.
  • #596
  • Feb 6, 2016 11:15pm Feb 6, 2016 11:15pm
Quoting medici
{quote} For example, what comprehensive method would allow you to trade both the chart posted by Cat, and the chart below, without anticipation or discretion? {image}
This is not a comprehensive method however could be the core of a methodology with some variations.......or not

Using very simple rules around the 2b pattern in the two chart examples that Cat and Medici posted would have yielded good results.

What is key with this method is this:

Don't

  1. Try to be clever
  2. Try to read PA bar-by-bar and predict outcomes

- the above is from Medici, see post http://www.forexfactory.com/showthre...88#post8696088

See attached charts for the method. I have used a 1 minute chart.

Cat's chart

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Medici's chart
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Now you can add whatever other indicator you wish as a filter or extra rule condition that needs to be met. Example, using Cat's fib pullbacks as an extra condition would minimise entering on small retracements etc.
  • #597
  • Feb 7, 2016 6:32am Feb 7, 2016 6:32am
Quoting ebitalebi
{quote} what is your definition of a good setup?
Good stuff Exactly what I had hoped people to arrive at. As skyway put it, this is the "end-game" of trading - researching and developing your own system.

And thank you Sakk for coming out of hiding The 2B way is a high-probability approach to things

For the purposes of illustration, I thought I'd sketch a simple approach to this. The idea is to use a SMA100/8ATR Keltner Channel and a Coppock Curve as momentum indicator.

Trades are taken from the MA and exited at the channel envelope, or from the envelope and exited at the MA.

Setups are:
1. First pullback to sloping MA
2. Momentum divergence at MA or envelope.

Entry trigger is change of colour of Coppock Curve.

As seen in the charts below, this simple system caught good chunks of all moves in these two cases.

Obviously, this needs to be back-tested, and there are further clarifications to be made, but the simple approach of a single Keltner Channel and a momentum oscillator works. I know many pros who use nothing but that.

And once has done the research, one might even considering automating it.

As skyway said, there's little quality material on this, but I know of two good and thorough sources:

Alexander Elder's book Come Into My Trading Room contains a detailed discussion of how to develop and trade a system based on a single Keltner Channel together with MACD. The detailed discussion begins on page 89.

The book by Adam Grimes mentioned above would be the next step after that, for a deeper discussion on everything involved.

I would recommend any beginner to go through this process of developing a Keltner Channel + Oscillator system - not necessarily as the final system to settle with (but it could well be!), but to learn the process of researching and developing a trading system. If after that you want to further refine things with more MAs, more timeframes, etc, the work on the Keltner Channel + Oscillator system would be the foundation to build from.
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  • #598
  • Feb 7, 2016 7:48am Feb 7, 2016 7:48am
Quoting ebitalebi
{quote}. If "Cat" agrees we can expand this discussion about what are the best ways to define a trend, find a trend, and trade a trend in detail and with examples.


It's not up to me, people here discuss what they want. I just started the thread, I don't control it
  • #599
  • Feb 7, 2016 8:08am Feb 7, 2016 8:08am
Quoting medici
{quote} Good stuff Exactly what I had hoped people to arrive at. As skyway put it, this is the "end-game" of trading - researching and developing your own system. And thank you Sakk for coming out of hiding The 2B way is a high-probability approach to things For the purposes of illustration, I thought I'd sketch a simple approach to this. The idea is to use a SMA100/8ATR Keltner Channel and a Coppock Curve as momentum indicator. Trades are taken from the MA and exited at the channel envelope, or from the envelope and exited...
Great post medici, good to keep newbies on the right side of the larger trend, buying pullbacks and selling rallies!

Quoting Sakk
{quote} This is not a comprehensive method however could be the core of a methodology with some variations.......or not Using very simple rules around the 2b pattern in the two chart examples that Cat and Medici posted would have yielded good results. What is key with this method is this: Don't Try to be clever Try to read PA bar-by-bar and predict outcomes - the above is from Medici, see post http://www.forexfactory.com/showthre...88#post8696088 See attached charts for the method. I have used a 1 minute chart. Cat's...
I disagree with number two.

You can absolutely read PA bar by bar and come out just fine. Of course, this is way down the road for most.
If you are good at something, never do it for free--Joker
  • #600
  • Feb 7, 2016 8:38am Feb 7, 2016 8:38am
How do you gain confidence? By winning
How do you win? By having faith in your system.
How do you have faith in your system? By Winning

All resulting from countless hours of hard work, perseverance, dedication and much trail and error.
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