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!