Why Trade Counter Trend?
It is true that some people believe that counter trend trading is hailed as the only true way to consistent profits in the forex markets. Acting against the market majority can definitely lead to some fantastic trades but does it make sense for all traders to look to take counter trend trades?
Counter trend traders have to be correct on more than just market movement. They also have to be correct on market timing as well. They need precise entry and exit signals to keep them from getting run over. Unfortunately many lack the skills required to do this sort of analysis. Eventually counter trend trading will lead to overtrading and over exposure to the market. Both of which contribute to account blow ups.
In reality there is no reason in today's market place that any retail trader should be trading counter trend. So many market options are available to traders that they should always be able to find a volatile market in line with a major trend. Trend trades have larger risk to reward ratios so that traders stay out of danger. These ratios lead to bigger profits in less time, exactly what novice traders are looking for, maximum return for minimum input.
Taking positions against the major trend means additional work and stress for the trader. More risk must be taken on to ensure the trade isn't stopped out by natural noise in the markets. Adding in trading components means lowering the winning %. If you have to be right on 2 sides rather than 1 common sense tells you that you are going to be less accurate.
If you are just starting out as a trader focus on identify trades within the dominant trend. Build up your technical analysis skills and refine your trading strategy. If all goes well and you can follow your rules and stay in the market long enough to build up some solid trading experience then and only then should you allow yourself to start to test out counter trend trading. The funny thing is by that point you will already be a profitable trader so there should be no reason why you need to switch your game plan when you are already winning.
For those rare individuals that are successful in counter trend trading I take my hat off to them. I love the idea that every ones styles and opinions matter in the market and I also love the idea that in the end I know their stops will eventually become my profits.
Article Source: FxTradingStock.com
About the Author
Want to find out more about futures trading, then visit Jeff Niles' site on how to choose the best e-mini trading school for you.
by: Jeff Niles
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Word Count: 429
Date: Sat, 18 Sep 2010
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