Counter trend trading strategy. Understanding Countertrend Trading Systems
By Joe Duarte For many traders, the quest to find a profitable countertrend trading system is all consuming. Countertrend systems appear desirable because their goal is to buy low and sell high. These systems try to identify inflection points, or the moments when stocks change direction, so traders can take positions close to when they occur.
The vast majority of trading systems follow market trends. Countertrend systems usually depend on oscillating indicators, reversal patterns, and channeling strategies to find turning points.
Some countertrend systems also are based on cycle theory, and others are based on volatility, expansion, and contraction. Countertrend systems generate a large volume of trades, and the more you trade, the more you spend on transaction and slippage costs. These costs alone often swamp potentially profitable systems.
Until you can confidently and honestly consider yourself a thoroughly experienced trader, stick with the proven techniques that are more likely to lead to profitable results over the long term. His work has been quoted in Barron's, Marketwatch.