| Why Trade Counter Trend? |
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| Written by Jeff Niles |
| Sunday, 12 September 2010 17:09 |
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It is true that some people believe that counter trend trading is hailed as the only true way to consistent profits in the forex markets. Acting against the market majority can definitely lead to some fantastic trades but does it make sense for all traders to look to take counter trend trades?
It is true that some people believe that counter trend trading is hailed as the only true way to consistent profits in the forex markets. Acting against the market majority can definitely lead to some fantastic trades but does it make sense for all traders to look to take counter trend trades? The problem with counter trend trading is that it adds an unnecessary component into the trade identification process. Instead of only identify the present market movement at play a trader has to also think of the time left in that movement. Then he or she has to accurately predict when that move will falter in order to capitalize on it. These new factors make counter trend technical analysis very difficult to master. In reality there is no reason in today's market place that any retail trader should be trading counter trend. So many market options are available to traders that they should always be able to find a volatile market in line with a major trend. Trend trades have larger risk to reward ratios so that traders stay out of danger. These ratios lead to bigger profits in less time, exactly what novice traders are looking for, maximum return for minimum input. Trading counter trend requires additional work for less benefits and increased risk. A counter trend trader must first identify the major trend and then focus on the counter trend. They have to be right on two different market components. One that the major trend is actually present and the second that a smaller counter trend is taking place inside that trend. They automatically double their chances of being wrong before they even start their technical analysis. If you are just starting out as a trader focus on identify trades within the dominant trend. Build up your technical analysis skills and refine your trading strategy. If all goes well and you can follow your rules and stay in the market long enough to build up some solid trading experience then and only then should you allow yourself to start to test out counter trend trading. The funny thing is by that point you will already be a profitable trader so there should be no reason why you need to switch your game plan when you are already winning. For those rare individuals that are successful in counter trend trading I take my hat off to them. I love the idea that every ones styles and opinions matter in the market and I also love the idea that in the end I know their stops will eventually become my profits. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Want to find out more about futures trading, then visit Jeff Niles' site on how to choose the best e-mini trading school for you. |