Introduction
Traders believe that counter-trend moves are hard to trade or even impossible to trade. It is possible to trade the counter-trend moves, but it is not easy to time the counter-trend markets. If you are not focused then the false trading signals, and overall frustrations will blow your trading account. First of all, avoid trading the counter-trend moves in the volatile markets and secondly avoid counter-trend moves when the new sessions begin. During the opening of the session, volatility is very high because the professional traders are busy in building orders. In this article, we will show you to easily trade the counter-trend moves successfully to make consistent money from the market.
5 STEPS FOR TRADING THE COUNTER TREND MOVES.
STEP 1. ALWAYS LOOK FOR REVERSAL CANDLESTICK PATTERN TO IDENTIFY THE COUNTER TREND.
First of all look for an uptrend, if the uptrend is not healthy enough then that’s a good sign. Draw the trend line by matching the two to three higher lows. While the asset is trending, you should constantly watch for the reversal pattern. This first step is the hardest one to trade the counter trend moves because some traders have a hard time to identify the candlestick patterns. When you identify the reversal pattern, it means merely the overall trend is ready to take the breath for a short time.
STEP 2.THE CONFIRMATION.
When the price action prints the reversal pattern at that stage, you must confirm the pattern. The confirmation can come in two ways. The first way is after the pattern; you can go to the lower timeframe to check if the price action is holding near to the pattern. Another way is after the pattern wait for the price action to hold below the pattern to confirm the trade.
STEP 3. TRADE THE COUNTER TREND.
When you identify the reversal pattern, the next step is to activate your trade. If the original trend is bullish, then the counter move will be bearish, so you should open a short position. If the original trend is bearish, then the counter-trend move should be bullish. These means you should open a long position.
STEP 4. COUNTER TREND STOP LOSS.
It is advisable always to use a stop-loss order to trade the market. If you are in the habit of not putting the stop loss, then you are going to face some serious issues in the future.
BULLISH TREND – The stop loss is necessary, and you must put it above the reversal pattern.
BEARISH TREND -The stop loss order must be below the reversal pattern.
STEP 5.HOW TO BOOK PROFITS TRADING THE COUNTER TREND.
Now that we confirmed how to enter in a counter-trend trades and where to put the stop loss, the next step is to know where you should book your profits. The rule is simple for booking profits; You should hold your trade until the price action touches the major support or resistance level, you can use any indicator to close your trade or look for the reversal candlestick pattern.
COUNTER TREND TRADING STRATEGY.
TRADING THE COUNTER TRENDS BY USING THE ENGULFING PATTERN.
The image below represents the uptrend in an AUDCAD forex pair. You can notice that the uptrend is not strong enough, and both of the parties were holding equal power which makes us more comfortable to take the counter-trend trade.
The image below represents our entry, exit and stop loss in the counter-trend. We are using the bearish engulfing pattern to trade the market. Bearish engulfing is a reversal pattern which appears at the top of the uptrend. It is a two candle of pattern; the first pattern is red in green in color which indicates buyers are strong and the second candle is red which completely engulfs the first candle, the pattern shows the buyers are not stronger enough in the moment, and sellers overtake the buyers. We activate the selling trade when market prints the engulfing pattern at the major support area and for booking profit we choose the most recent lower high.
TRADING THE COUNTER TREND BY USING THE SHOOTING STAR PATTERN.
The image below represents the uptrend in the GBPCAD forex pair.
The below represents our entry, exit and stop-loss order. Overall the market was in an uptrend, and after some aggressive moves, buyers started struggling to go higher and end up printing the shooting star trading pattern. A shooting star is a reversal pattern that consists of long upper shadow and a small real body near the low of the candle. The pattern indicates at the opening of the day buyers came strongly, but the aggressive sellers smacked down and closed the prices at the opening of the day. We activate the selling position at the closing of the pattern with smaller stops and take profit goes to the most recent support area. These are the two above methods we use the trade the counter trend markets. If you found a reversal candle in the strong trending market, never use that candle alone to trade the market for a single candle, it is hard to reverse the market. Always let the original trend to slow down then only go for the counter-trend trades.
CONCLUSION.
The market moves in a cycle; you will witness the counter-trend moves and impulsive legs also. After the long move, the ongoing trend needs rest, so as a result, we witness the pullback. These pullback moves which we are interested in trading, and these moves are known as the correction moves. In volatile conditions, it’s hard to trade these counter moves so always look for the dying trend to trade the markets. To trade the moves successfully follow the above five steps, find a reversal candles after a significant move, confirm the pattern, take the trade, put the stops above or below the trade (according to the market conditions and close your trade when prices approach the trend line.
