Counter-Trend Trading: A Dangerous Game?

Filed under: Learn Forex Trading |

 As I mentioned the concept of “counter-trend trading” in my Live Trades report today, I thought I would base today’s article on an explanation and analysis of the concept.

 

To begin with, counter-trend trading is when you take a trade that goes against the dominant trend. Now, this is where it can get a little confusing. Depending on which timeframe you are looking at, there can be different and opposing trends in place. The daily chart may be in a bull trend, but the 1-hour chart may be bearish. So which trend are we talking about? Well, the daily trend is the most important one, but the short-term trends also hold some weight.

 

Personally, I like to trade with the trend on the daily chart if possible and look for pullbacks that are going against this trend. If price pulls back and then forms a price action signal at a previous area of support/resistance, then I know that this is a high probability trade. However, I do occasionally go against the long-term trend if the setup is a particularly good one and has a good deal of confluent signals all pointing to the same thing; but it can be a dangerous game to go against the strong wave of recent momentum. It is like trying to swim against a strong tide, and you should only do so if you have a lot of information telling you that the tide may be turning.

 

In summary, counter-trend trading is not for beginners, and if you are a beginner, then you are almost certainly best to go with the trend if you can. However, many forex professionals do make money by making counter-trend trades, so you would do well to keep an eye on these and learn by watching. There are many ways to trade, and if you can find just one way that works for you, then you will be well on your way to becoming a successful forex trader.

 

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