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As the headline tells you, today, we will be discussing one of the trading approaches again, when trading positions are open, being in direct contradiction with actual market sentiment. Usually, traders use this trading approach at moments when they believe (against any trend prognoses) that the market reached its saturation. That means that it reached its bottom or, conversely, its top.
Reasons why traders start to use countertrading
The main reason why traders tend to use this trading method is naturally the expectation of another potential profit. However, if we ignore the issue of profitability, another reason why it’s so popular for traders, it’s their effort to try trading against the trend, so to take advantage of opportunity to open trading position “immediately” when new trend starts, what’s e.g. in case of trend strategies very difficult as in this case, trading positions are open only when new confirmation arises in the market.
Unfortunately, it’s usually this waiting for trend confirmation, in particular in the case of less experienced traders, that results in the opening of trading positions relatively later and the traders, instead of making a profit, they tend to lose at the end. Therefore, it makes sense that in spite of trend strategies, in case of countertrade, traders are trying to find bottoms and tops in the market, offering them the opportunity to enter already at the beginning of the trend and to achieve better profitability during trading sessions.
Psychological analyses – crowd analysis
Regardless of the fact if traders specialize in forex, commodities, equities or any other market, we may state that the main factor moving the markets, is crowd behaviour. And right the analysis of crows is, in case of countertrading traders, the fact helping them to predict “optimal” price levels where trading positions shall be opened. Except for this analysis, counter-traders naturally use any other trading instruments in their strategies.
Other trading tools of counter-traders
As well as in the case of trend traders, here it’s also possible to use fundamental as well as technical analysis. When it comes to fundamental analysis, monitoring and evaluation of important news, that may represent potential incentive for trend changing, is very popular among traders.
In case of technical analysis, often the popular price action, oscillators, moving averages and different indicators of market sentiment are used, representing another useful support for the search for market turning points.
Trading plan in countertrading
Having a prepared trading plan is a priceless benefit in case of any strategy. The right trading plan should clearly and transparently specify the procedures and decisions traders will apply in case of certain market situations.
Except for the procedures, the trading plan should have also e.g. indicators set in advance, or the conditions under which positions are opened/closed, and at last but not at least, a proper money-management set, where also the issue of size of open positions is solved as an example.
In the eyes of some people, a trading plan could look like something of minor importance, however, as experiences shows us, the existence of the right trading plan often makes the difference between winners and losers.
Conclusion
Countertrading and its application is a very complicated issue, requiring the traders to train it and experience it, however, on the other side, it may offer great trading opportunities to traders. And even though, opinions on this trading style differ markedly, so it’s more than certain that whoever could adopt it, he’ll have one of the most effective trading weapons, thanks to which it’s possible to achieve also better trading results.
If you would like to try out trading with top tier trading conditions and professional forex broker, don’t hesitate to try our demo account that may be open on our website completely for free and free of any risk: www.purple-trading.com
We wish you many profitable trades!
About the Author
Team Purple Trading
Purple Trading is a true and 100% fair ECN / STP forex broker providing direct access to the real market. High speed orders execution, no trade-offs, no limits for any type of trading, the most advanced trading technologies. Explore more about Purple Trading at www.purple-trading.com.
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