Trend Trading vs. Countertrend Trading

While I have studied counter-trending methods, and sat thru extensive workshops given by educators that teach counter-trending methods, the traders I consider my own mentors have all been trend traders.    

After spending 12 hours per week over the past several years pointing out trade set-ups and signals to clients in live markets during the London and New York sessions, I have a theory that most decisions we make in life and trading lead to one of two roads. The first is happiness and success. The second is conflict and anxiety. And the majority of traders do not end up the road that leads to happiness and success. I’m not sure why that is, but it may have something to do with the road to happiness often appearing to be not as much fun as the other. The road to conflict though is paved with temptation and excitement. I’m starting to view the difference between trend trading and counter-trend trading the same. Trend trading is somewhat boring in that you generally focus on the same markets and the same set-ups day in day out – see snapshots of signals on 5/2 and 5/3 — and you wait patiently for that one trade per day –occasionally two — and you get in the trade, and again wait patiently for it to develop, and you let the profit run if it’s going to – it is definitely a lot of waiting around.   

Then there is counter-trend trading where you are trying to buy or sell the market as close to structure as you can, then jumping out of the trade just as quickly when you get an 8 tick profit — even though your plan calls for a 12 pip target. Then you repeat the process again before your heart rate has time to slow, all the time hoping the structure holds and you don’t’ get swept away and give up 2 or 3 trades profit in the process. One benefit though is that the counter-trending educators tell exciting stories of past trading adventure, and use catchy terms, and lively language. Plus after working hard and trading in and out all day, and only losing a little bit of money, you still feel like you had fun.

Call me boring, but I’m better suited for the patient person’s game of trend trading rather than the excitement of counter-trend trading. As a trend trader all I need to know about news releases is when they are scheduled and how the market reacts to them. I don’t need to try to understand the Bank of England’s policies, or have my focus broken by someone calling out an economic number in a pseudo announcer’s voice. As a trend trader all I need to know is which way the long-term trends are pointed on yesterday’s close.

Regardless of whether you trade with the higher time frame trends, or counter to them, trading still means you have to risk your own money to try to take someone else’s money, and that is something that most people are not suited for. Though in my humble opinion I can say it seems easier to take the counter-trend trader’s money than the trend trader’s. Which reminds me of that joke where a young bull and an old bull are standing on a hill looking down at a field full of cows…and the young bull says to the old bull…  

Jay Norris is the author of Mastering the Currency Market, McGraw-Hill, 2009. To see Jay point out trade set-ups and signals in live markets on the London/U.S. overlap go to Live Market Analysis

DISCLAIMER: Forex (off-exchange foreign currency futures and options or FX) trading involves substantial risk of loss and is not suitable for every investor!

Twitter Digg Delicious Stumbleupon Technorati Facebook Email

About Jay Norris

Jay Norris is Director of Education at Trading University, has over 30 years of trading experience, and is the best selling author of "Mastering The Currency Market", McGraw-Hill, 2009, and "Mastering Trade Selection and Management", McGraw-Hill, 2011. He has also been published multiple times in Technical Analysis of Stocks & Commodities magazine.

3 Responses to “Trend Trading vs. Countertrend Trading”

  1. Trend trading looks to be more “comfortable” to many Forex traders. Unfortunately it’s prone to such unexpected pitfalls as this week’s Silver, EUR/USD, EUR/GBP, etc. dropdowns.

  2. Thank you Andriy,

    Yours is the popular perception. However as a trend trader I knew that the short-term direction in the AUDUSD had shifted last Tue, which made short intraday trades on Wed & Thu in this pair trend trades. As for silver, we alerted our blog readers on 4-25 see: http://trading-u.com/blog/2011/04/maelstrom-in-metals-may-tear-thru-currency-markets/

    Being a trend trader means trading in the same direction as price pattern — long-term trend — but we certainly have the freedom to exit on short-term shifts. technical analysis is scalable so the short-term trend on a Daily chart is the intermediate, or even long-term trend on lower time frame intraday charts.

    Jay

Trackbacks/Pingbacks

  1. Forex Crunches for the Weekend – May 7 | Forex Crunch - May 6, 2011

    [...] suggests how to fast track your way to profitable trading. Isn’t that what everybody wants?Jay Norris discusses trend trading vs. countered trading. Is the trend your friend, or are you a [...]

UA-8362861-1