Sunday, May 6, 2012
Counter trend dangers
Was sick for a bit, now I'm better. A lot of new traders it seems like going counter trend, I guess the thinking is that they have missed the current move, but they can catch the reversal. There's a time and place for going counter trend, but I think only experienced traders who take there stops with discipline should attempt counter trend strategies. I think a big key to winning with counter trend strategies is using high risk vs reward profiles on each of your trades, your win rate will likely be low, so every time you win you want to make much more than your average losing trade. Try experimenting with different risk vs reward parameters, like maybe risk 2 points and aim for targets of 6 points, of course you should try sim trading any strategies before committing real capital and trying said ideas out in a live marketplace. However you can use similar risk vs reward profiles for with trend setups, so don't get too caught up with the idea of going counter trend, it's dangerous and not recommended for beginners. Below are a couple examples of what can happen, mostly losing trades / break-even trades every time the market looked like it was going to turn, and that's if you got in as early as possible (which is something you should strive to do when going counter trend, you must be early). So be careful when trying stuff like this or you might be looking at an account balance of $0.00 at the end of the session!!
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