Forums > Is counter trend trading a disease?

Jul 16th, 2013, 03:08 AM   #25

Join Date: May 2002
Posts: 680
It seems a definition is in order. Can we basically agree with the definition below. (I know I will regret asking this)

What Are Fractals?
When many people think of fractals in the mathematical sense, they think of chaos theory and abstract mathematics. While these concepts do apply to the market (it being a nonlinear, dynamic system), most traders refer to fractals in a more literal sense. That is, as recurring patterns that can predict reversals among larger, more chaotic price movements.

These basic fractals are composed of five or more bars. The rules for identifying fractals are as follows:
A bearish turning point occurs when there is a pattern with the highest high in the middle and two lower highs on each side.
A bullish turning point occurs when there is a pattern with the lowest low in the middle and two higher lows on each side.
The fractals shown in Figure 1 are two examples of perfect patterns. Note that many other less perfect patterns can occur, but the basic pattern should remain intact for the fractal to be valid.

The obvious drawback here is that fractals are lagging indicators - that is, a fractal can't be drawn until we are two days into the reversal. While this may be true, most significant reversals last many more bars, so most of the trend will remain intact (as we will see in the example below).

From Investopedia.
Attached Images
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 Jul 16th, 2013, 08:41 AM #26 riskaddict Registered User   Join Date: Oct 2006 Location: East Coast Posts: 2,007 If a trend has formed do to some breakout of a previous pattern then in theory the trend is measurable and then a counter trend trade is justifiable. Or if a trend has taken you to a previous resistance level then that is a justifiable signal. If you like the feeling of counter trend trading you better be willing to trade anything under the sun because quality signals are few and far between if you are trading large time frames. Quote
Jul 16th, 2013, 10:28 AM   #27
Crispy

Join Date: Jul 2009
Posts: 830
Quote:
 Quote from stevegee58: Trend following on one time frame involves counter trend trading on a lower time frame. In other words when you buy dips you're really buying into a longer term trend while the market goes down in the short term.

Great post Steve.
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 Jul 16th, 2013, 11:03 AM #28 Trader.Fighter Registered User   Join Date: May 2012 Location: Florida, USA Posts: 728 You cannot assume a larger timeframe or fractal trend can boss a counter smaller timeframe or fractal trend. Breakouts will occur when one of the following occur: A larger bosses a smaller countering or A smaller bosses a larger countering It's up to you to decide who's going to win the battle, and many times waiting is the right call. In terms of who's your friend ? Not just the trend, as there could be several, but the trend actually winning. Quote
Jul 16th, 2013, 12:53 PM   #29
NoDoji

Join Date: May 2008
Location: Location Location
Posts: 9,386
Quote:
 Quote from trader99: How did you get rid of it PSYCHOLOGICALLY? I understand it's a high risk low probability success trade INTELLECTUALLY. But for years and even now occasionally I'm still attracted to it. In fact, I'm afraid of POWERFUL trends! I like a steady trend. In a powerful trend, prices are moving so fast that I'm afraid to buy or sell at market. I try putting in limit orders, but prices keep moving away from me.
Once price breaks out (of something, such as a HOD/LOD or a triangle or a range) with conviction (definition of conviction should be defined for your instrument in advance, I use 8-10 ticks for CL), try this:

Look at a smaller time frame for pullback bars, a bar that breaks the high/low of a previous bar counter to the trending move. It looks/feels like the move is over. Hold your nose and place a buy stop or sell stop above/below the new high/low.

Just do that every time there's a strong trending move in play. It's a great exercise for getting over counter-trend trading. I started out a few years ago with very small size AAPL and AMZN stock, learning to do the absolute opposite of everything I'd done as a beginner.

Once you get over that fear of going with a strong trend, you should investigate ways to get positioned during the pullback in the smaller time frame, so when price breaks out you have bigger profit.

ADD: Getting into a strong trend off a pullback feels really counter-intuitive. If you remember the first time you got on a plane and it's barreling down the runway and you're thinking "There's no way this thing can just lift off the ground...we're not going fast enough...it's not gonna work..." That's how I felt entering with-trend off pullbacks. Often there's wiggle and jiggle that goes on and you feel like you've just put on the dumbest trade in the world, then suddenly out of nowhere....LIFTOFF! (Or CRASH if you're shorting, LOL).
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Jul 16th, 2013, 01:16 PM   #30

Join Date: Mar 2010
Location: usa
Posts: 1,463
nothing wrong about bottom picking and top short sale!

top and bottom produce the best profitable trade. yes it is hard to predict top and bottom,but worth doing that.

if you donot use margin, when index drop big, buy, maybe a little early,but often near the bottom or around there. common sense should prevail.

whether you are counter-trend trading or not, as a matter of fact, when you enter, you really do not know you are in the right direction or not, only time tells. often you see a trend, think you are smart and jump in the direction of the trend, but the market changes its direction just as you jump in.you try to followthe trend, but it is impossible because of the trend uncertainity!

any trade which produce loss is counter-trend trade. any trade which produces profit is trend following trade. the only way to make profit is in the direction of the market.

you can not avoid counter-trend trading, since the market's trend is uncertain or not clearly defined for you.

if everything is so clear,we all do not need trade, no one can make money. the uncertainity creates opportunity and traps, that is why someone can make money, why others lose.

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