What is a Counter Trend?
Talking about forex trading certainly does not forget about the various strategies that exist in the world of trading. As we know if in the world of trading requires a good understanding. Whether it’s an understanding of market trends, forex news and also the instinct sharpness that a trader has in determining market entry and exit. This is because in trading timing has an important role in determining the level of profit that will be obtained from the trader. Well for this reason a trader must have his own trading strategy. With its trading strategy, a trader can transact correctly. In addition, traders can also ensure that every transaction that is done will be able to generate profits as expected. In the world of trading itself there are various types of strategies that can be used for trading. But as we know if all trading strategies are not necessarily suitable for all traders. And from various trading strategies that exist this time we will discuss the counter trend trading strategy.
Counter means to fight. Fighting here can be interpreted as replying, arguing or answering. Now in the world of trading counter this trend refers more to, the step of the trader in anticipating the price reversal by opening a trading position that is opposite to the market in general. For traders who are professionals, usually choose a counter trend strategy when market conditions are sideways by placing pending limit orders on their transactions.
For this reason, you can say, counter trend is a trading strategy or system that focuses more on finding opportunities in sideway market movements or stagnant market movements in the form of consolidation. Sideway conditions have characteristics that are easy to identify, by looking at the market that moves ranging with the price of peaks and valleys that are equivalent in a horizontal line.In addition sideway conditions are sometimes characterized by peaks and valleys from irregular market movements. If you find signs like this, it means sideway will occur when the conditions of the market trend up and down trend conditions have been met. When sideway conditions like that are arguably the best time for traders who use counter trend strategies to get the expected benefits. To identify sideway conditions traders can take advantage of various existing indicators such as the RSI and stochastic indicators. But sideway can also be seen by using reversal marker candlestick patterns such as star shooting and tweezer.
This trading method or strategy is more often used by big bosses and big-class traders who have large capital. This is because the core of this trading strategy is to fight the trend in general and fight the majority sentiment of other traders. For this reason, in applying this trading strategy, a large amount of capital is needed.Counter trend strategy users are known as contrarians or reversal hunters. But there are also those who call them stop loss hunters. In implementing this strategy a contrarian thinks that the price movement always moves zigzag. This movement is what they think is the same as this life will never last and there will certainly be a change in trend. That reason is what makes them confident in using this strategy, even contrarians have a motto, buying in a valley that will then be sold is sold (buy low sell high). This means that they will buy if the price is still far below and sell if the price has reached the highest peak. The point is that these contrarians have a goal to capture new trends that will occur earlier than other traders.
Pros and Cons of Counter Trend
The advantage of the counter trend method is that a trader can catch a new trend earlier and faster than the others and can get a bigger reward at the end. But behind the advantages and the big profits generated from this strategy. Counter trends also have several disadvantages such as: there is a possibility that these contrarians can get stuck when making transactions too quickly, but the result turns out the trend continues. The risk is if this happens they will lose money in large amounts and if in a profit or floating in profit condition they will also be trapped to close the position earlier. Even though at that time the trend was still continuing and there was a possibility that it could generate greater profits.
To overcome the shortcomings of this method, it is best not to rush into transactions. Wait until the price is completely exhausted. Don’t forget to make sure you use good money management. Also use stop loss and do trailing immediately if the position is in a favorable condition. This is to anticipate if the price movement turns back or turns around.