In this episode of Truth About FX, Walter digs into the subject of counter trend trading and different between counter trend and trend traders. And, how do you find out which one are you?
According to him, each traders differs based on their style and beliefs.
Download (Duration: 03:52/ 4.43 MB)
In This Episode:
00:40 – broad sense
01:51 – ride the trend
02:34 – quick and dirty
Work with your beliefs instead of going against them. [Click To Tweet].
You do not have to trade with the trend. [Click To Tweet].
Traders out there are more likely to not want to ride the trend. [Click To Tweet].
Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.
Hugh: Hi, Walter. I’ve heard that trend traders are usually mostly counter trend traders. What do you think about that?
Walter: I disagree. What I would say is there’s different styles of trading but, in a broad sense, you could say that that people are counter trend trader but, actually, there are other sort of traders. There’s reversion to the mean traders.
I guess you could call them counter trend trader but, really, all they are looking for is a directionless market that gets a whack of it and they trade it back to the mean. Then, there are break out traders.
They wait for the market to get really, really quiet and do hardly anything. When everyone is relaxed and gets about that market, boom! It breaks out and they take a trade. It is not really as simple as trend and counter trend.
Probably the reason why a lot of people look at it that way is because we’re taught and we’re beat over the head of this idea that you must trade with the trend. That is not necessarily true.
You do not have to trade with the trend. You can do really well as a breakout trader or as a reversion to the mean trader or even as a counter trend trader. I do not think that we should say that.
I will say, though, traders that I’ve tested, most traders I’ve come across who have taken my trader personality, they come out as a counter trend trader. In other words, most of the traders out there are more likely to not want to ride the trend.
What does that mean? They are reversion to the mean trader or a counter trend trader or whatever, I do not know. It just means that they do not like this idea of jumping on the trend for what it’s worth.
That’s what I found and that is usually around 70 to 75% of the traders out there. They are not as comfortable taking with the trend trades.
Hugh: Interesting. I’ve never heard of that style before.
Walter: Okay, cool.
Hugh: Is there any way that you can tell if you are better as reversion to the mean trader or a trend trader or something like that?
Walter: Yeah, absolutely. I’ll put a video down below on the shownotes for this episode and you can just go to that video. It’ll basically give you a quick and dirty test and see for yourself what kind of trading makes sense to you.
They will be naked charts down there in the video so you won’t have any indicators to work off, if that is what you do but that is okay. I am just going to ask you a few questions about the charts you see and then you can decide for yourself whether or not that is the kind of market that you look to trade.
That is one way to find out rather quickly and, the other thing is, if you have a friend. Let’s say, you have a friend, Hugh, and your friend trades some sort of trend trading system. You’ve tried to duplicate it because your friend is quite successful.
What you might find is you just can’t do that. You really have a difficult time, you start adding new rules or whatever. That is going to tell you that you are reverting back to your beliefs, which is fine.
I just think that you should work with your beliefs instead of going against them. Go ahead and take that little video test down below in the shownotes of this episode and you can see for yourself what I think you are based on what you believe. Maybe that will help you in terms of if you are trying to find a system that is for you.
Hugh: Okay, cool! Thanks, I appreciate that. I know what I am but I am going to take the test anyway and see what happens.
Walter: That is great. See you later.
Hugh: See you.