Forums > Trading for a Living > Psychology > Is counter trend trading a disease?

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Old Jul 16th, 2013, 03:08 AM   #25
Join Date: May 2002
Posts: 736
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.
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Old Jul 16th, 2013, 08:41 AM   #26
Join Date: Oct 2006
Location: East Coast
Posts: 2,028
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.
Old Jul 16th, 2013, 10:28 AM   #27
Join Date: Jul 2009
Posts: 898
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.
Old Jul 16th, 2013, 11:03 AM   #28
Join Date: May 2012
Location: Florida, USA
Posts: 729
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


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.
Old Jul 16th, 2013, 12:53 PM   #29
Join Date: May 2008
Location: Location Location
Posts: 9,448
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'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).
Old Jul 16th, 2013, 01:16 PM   #30
Join Date: Mar 2010
Location: usa
Posts: 1,467
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 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.

Quote from Trader.Fighter:

I enjoy reading trader's psychology in public forums, not just this one, but others across "The Net". Watching how traders think and act, watching them get trapped, then enter a phase of denial by adding to positions doing very poorly because the trend just kept going.

One thing that has surprised me all along is the need to call bottoms in downtrends or the opposite, calling tops in uptrends.

The need to predict the change of a trend without an ounce of confirmation. Not just occasionally but some have adopted it as a dominant trading style. Is there a relation between this and vast majority of traders losing ?

Is it a trading disease or an addiction ?

It's certainly something harmful and during my early years of trading I recognized it as a cancer in my trading, one I had to eradicate to succeed.

On a different level, should counter-trend signals be used to exit trend positions ? Should they be ignored ? Should they be taken and reverse back when the trend have identified the counter-trend signal as clear trap ?

Not trying to disrespect anyone, just trying to start an adult discussion on the matter.

Best wishes and please discuss.
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