First Of All, What Exactly Is Counter- Trend Trading

Category: Finance, Currency Trading.

Counter- trend trading is nothing new, but it still remains a mystery for many inexperienced traders.

This is trading when a market s overall movement is going neither up nor down. First of all, what exactly is counter- trend trading? You see, a market is trending regardless of what direction the price is moving. If the overall price is moving steadily down, that s NOT a counter- trend, but a downward trend. If the price is moving steadily up, then that s an upward trend. A counter- trend market is one in which there isn t any major move in price either up or down, but where the general market is moving sideways. An overall market may stay within the same price range for a week, so it looks like there is no movement, but within that range there is still enough back and forth movement( whether it s hour to hour or day to day) that if you buy and sell at the right times, then there is still profit to be made, though in much smaller increments than what you could make with a trending market.

Counter- trend trading takes place when the market is in this mode, and the hope with counter- trend trading is to make several small short term trades within the range of the counter- trend in order to make some profit until a breakout occurs to put the market back into a trend. Since the market is more or less moving sideways and staying within a certain range, it can be hard to find the right trading strategy. A good counter- trend trading strategy can be especially important in the Forex market because more often than not, the Forex market is in counter- trend mode. This also means that counter- trend trades have to be short term trades. The market is in counter- trend mode around 60% of the time, meaning that the majority of the time you won t have a clear trend to work with. Over a week a currency may stay within the same narrow range of prices, but if you can buy low and sell high during the various price movements within that range, then you can still profit from those small movements, even when the market in general doesn t seem to be moving, but you need to have the right system!

Because of the constant movement of the Forex market, and because the Forex market doesn t close, there are far more opportunities to make small profits counter- trading.

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