Have you ever wondered why most traders counter trend trading? Why do most people like to find the top / find the bottom? This article will share about the cause of this problem.
First, we need to agree with each other, that follow trend or counter trend trading is good, both methods have their own advantages and disadvantages, and both lead to the destination. As long as we place a trade, at any price range, and are either in the direction of or against the trend of the market, we need to know where we stand in the overall picture of the market, from there to get a specific target for the trading order (take long or short, take profit and stop loss where, order volume more or less...)
So, based on that objective point of view, the percentage of people who trade in the trend and against the trend should be approximately equal, but in reality the majority (about 70%, in my opinion) investors are trading against the trend. And here are 5 reasons for this:
1. Counter trend trading is easier to win:
It sounds a bit unreasonable, even some people will be "bewildered" because the conclusion seems like a myth, but it is true. If you don't believe it, try trading for a while and then come back to see if the same conclusion is correct. However, what I'm claiming is just that it's easier to win - but not to say more or less, than trading in the direction of the trend.
So, now the fuller conclusion: Counter-trend trading is easier to win, but often less winning and riskier than trading in-trend!
This is true! If you look at the price chart of the forex market, you will easily see that in a major trend, the price will often have small waves back (opposite of the main wave), and those small waves are orders reverse - and often eat less, of traders who trade against the trend.
2. Counter trend trading have more entry points:
"Most of the time the market is trending" - this classic conclusion is always true, especially for traders who follow the school of technical analysis. In fact, I can give an example with the chart below:
Too obvious, right? Most of the time the price goes in the main trend is down, most recently the price is sideways.
So, if you are a counter-trend trader, assuming their entry point is very optimal (just assuming) then there are infinitely many buy points (up arrow), while for a trend-forward trader to having the optimal entry point they will have to wait and have only a few entry points (arrow pointing down). Note that here I am only talking about frequency, that is, the number of opportunities for optimal entry points (optimal criteria will depend on each person's trading system), I am not talking about profit margin profit of the trading order.
Similar to the D1 frame, other timeframes such as H4, H1, M15, ... will also have a higher number of opportunities for entry points, for counter-trend traders than for traders trade in the follow trend.
That is why, plus traders often won't be able to monitor the market continuously, nor have the patience to wait for an entry point, so they often choose a trading solution as soon as they see the chart, and see the opportunity "seems acceptable" opportunities, which are mostly counter-trend trades. And this is often seen in traders with less than 3 years of experience, making up the majority of participants in the forex market.
3. Time to enter trades follow trend trading is very short:
This is the core element of the problem, if anyone who is a follower of the trend will be the one who understands it best.
To explain this from a technical point of view is not difficult, because in an uptrend, when the price returns to an important support area, it will usually bounce back quickly, rarely giving investors the opportunity to consider the balance remind. It is a normal and logical manifestation of a strong trend. The best solution for the entry cases here is to use a pending limit order, we will still be able to match the best price order even while lying on the beach.
4. Counter trend trading will be more profitable:
Read this far, do you see something wrong? I said above that I usually eat shorter, now I say eat more? That is correct, but with additional conditions if entering the right position at the top and bottom. And the R:R ratio has always had a strange appeal to traders. Because psychology has gradually led traders to trade more counter-trend, in order to find high and low price areas. Finding the right or wrong top or bottom I don't give an opinion here because each has its own advantages and disadvantages, it all depends on how each person uses it.
5. Most technical indicators give signals at the top and bottom (reverse signal):
That's right, most technical indicators, which are the trading methods almost every trader goes through in the early stages of this career, list reversal signals, top signals, and bottom signals. Even the candlestick patterns, which are the most basic tool in technical analysis, have a lot of top and bottom (reversal) patterns, while the continuation patterns are far fewer.
Above are 5 reasons to counter trend trading of most traders in the forex market. Hope the article will bring some value to readers.
Thank you for reading and sharing this article. See you in the next posts.
Best regards,
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