Introduction to Countertrend System

W

Willleung

Any pointers for Countertrend systems for swing trading?

Most of my books are on trend fellowing systems, would like to learn more on countertrend...

What's their basic theme?¡¡(certain persentage of reaction after lowest low value etc?)

How do estiablish comfirmation or filter on a countertrend system?

Any input welcome.

Cheers




Will
 
Counter trend trading is basically looking for and trading perceived trend exhaustion, in my opinion. Short term overbought/oversold markets are ripe for counter trend trading. Usually for counter trend trading you will have to be nimble when it comes to taking profits, as you are fighting the trend and want to get out as soon as the current starts flowing against you. Again, just my opinion.

Good luck.
 
I trade counter trend. There are also a number of others on here who are professed trend faders.

I am a price action only trader. I use nothing but a candle chart. I look for price behavior that exhibits a shift in supply/demand.

I am very quick to take both profits and losses.

I used to be a trend trader, but it did not suit my personality. Too much ambiguity in the definition and application of "Trend" for me.

You might want to check out Nihabashi's hammer thread. It has a wonderful expose on price action trading; specifically on price rejection. This is a good start.

Good trading to you.
 
Thanks a lot,

I will start reading on this subject.

When I started this tread, I was thinking on how Trend Fellowing System not working on some market condition (Hong Kong Heng Seng Index Futures 5/1994~11/1997). Whatever variables working on rest of the testing period (ie, 1993~2006) just don't work on that period.

I understand one mechanical system won't fit all market condition, and I was using Standard Deviation to change my entry & exit rules. The only bit of information currently at hand is half a page in Jack Schwager's Getting Started Technical Analysis.

Would appreciate some pointers on classifying market conditions. (SD? ATR?)

Cheers




Will
 
Will,

Some things to think about ( i trade index microswings ):

- on a day timeframe it might not be trending but what about 30 minute bars (different timeframes for different behaviours)
- swing trading (targets for exits) takes money when trend following (trailing stops) doesnt
- i have found it very difficult to identify non-trending vs trending periods until they've been that way for a bit and then sometimes they revert to they other way just as you think you've got it, so
- why not abandon hope of knowing and just trade 2 systems simultaneously one countertrend and one with the trend
- why not improve things further and add a swing trading system so you get 3x diversification on one tradable.


IMHO you would do well to read anything written here by acrary. Unlike many of the self-proclaimed guru's here he really does have his shit together. Cheers :)
 
There are three types of countertrend strategies. One is a short term trade, which is for a few points, this strategy is best suited for trending markets, when trading against the trend. Another is a countertrend strategy that captures a short term pullback in a trending market, and use that to enter with the trend. This is very profitable. Finally, the last is catching the reversal of a market. These are the points at which profit potential is the greatest of any of the three countertrend strategies. I have been doing alot of work lately on these strategies, and it looks very promising, the key is that each market has a different time frame works best.

Goodluck in your search.
 
Quote from eco:

Will,

Some things to think about ( i trade index microswings ):

- on a day timeframe it might not be trending but what about 30 minute bars (different timeframes for different behaviours)
- swing trading (targets for exits) takes money when trend following (trailing stops) doesnt
- i have found it very difficult to identify non-trending vs trending periods until they've been that way for a bit and then sometimes they revert to they other way just as you think you've got it, so
- why not abandon hope of knowing and just trade 2 systems simultaneously one countertrend and one with the trend
- why not improve things further and add a swing trading system so you get 3x diversification on one tradable.


IMHO you would do well to read anything written here by acrary. Unlike many of the self-proclaimed guru's here he really does have his shit together. Cheers :)
More...

Yeah, his stuff are pretty deep, here are two of his that I came across, and return day after day..

Quote from acrary:
In short what I found was a handful of simple strategies in a couple of markets were just as effective as all the years of work I did on finding market inefficiencies, measuring them, and exploiting them with tight edges. I had to give up my basic market premise and now go with "the markets are mostly inefficient and chaotic with small periods of stable predictability but with large periods of stable recurring strategic themes."

In short, at 50 I feel like an old fool. Squandering my time trying to figure out the optimal way to fish in a pond when all I had to do was turn my back and throw out my line into a ocean full of opportunities. Maybe some 20 something will learn something from this and not waste his life like I have with the false perceptions I bought into. Our perceptions are indeed our reality. [/B]
More...

Quote from acrary:

Lets say a market has two primary characteristics; trend and bounce off support/resistance on a daytrading basis. The market opens and starts to drop. You enter a short following the trend. The market goes down to a support level, stalls and starts to reverse. The support model kicks in a long trade. Meanwhile the trend model is far enough ahead that the stop is moved to breakeven. The market continues up and ends the day near a old high (resistance). In this case you brokeven on the trend trade by using common trade management. The bounce trade made a good profit. No bias was taken because you would've made money if the market blew through support and the bounce trade was stopped out. That's all I'm saying.
More...

Working on the first one, and looking into setting up the second one but as a backet trade for OBO.
 
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