Monday, May 23, 2016

Making Profits with Counter Trend Positions

currency trading

In binary options trading, one notable thing about the market trends is that they will keep trending up and down. The price action of a certain pair does not keep tracking to one direction forever. That occurrence is the same for currencies, metals and commodities. Theoretically, a trader can count on prices making crucial reversals at some points on the graph. If looking at trading from a trends perspective, it is possible to classify trades into two. There are traders who will try and identify the general trend of a certain pair and then place their trades with the expectation that this trend will continue (trend following). An equally respectable trading technique called counter-trend trading involves waiting for price movements that do not seem to fit in with that trend and capitalizing on them, in the hopes that the price action will correct (go back to its usual movement).

There are many different variations of the counter trend trading technique but they are mostly based on the notion that there are tops and bottoms existing within a longer-term trend and a lot of action occurs when the price is close to those levels.  In a situation where the price rises to a previous high, a trend trader expects the price to hesitate at that point but still continue making more gains after a while. A counter-trend trader may in the same case choose to sell at that historic high with the view that price normally relaxes and attempt reversals back to lower levels. They aim to gain from the temporary bearish conditions that emerge right within a bullish run.

Counter trend positions need patience

Counter trend trading suits investors with discipline, patience and know how to remain calm even when things have not yet started going according to book. It is easy to write off patience or discipline as side shows that have little to do with complex mathematical trends or a market that does not recognize an individual trader’s existence that much. The true picture of their importance can be learnt when people take regular looks of their weekly or monthly trading positions and seeing if the losers or winners have something in common.

Combining counter-trend and on-the-trend positions

Trading trends is just a matter of chancing with the odds. A trend is not guaranteed to remain valid until a precise point. Nobody can make a call that a trend change will occur at exactly noon for example. For this reason, a trend trader cannot rubbish the counter trend trader’s approach. A good trading system makes a good combination of on-the-trend positions and counter trend positions. This way, a trader will have the peace of mind that comes with knowing that he is not placing trades while counting on his prediction of the trend direction being 100% correct. There are never any certainties when trading binary options.

Swing trading is a good example of traders taking advantage of price spikes by placing counter trend positions. There are times the market can over-react to some news releases. The price action may rally suddenly due to some rumor and more realistic price levels are reached soon after. The greed or tensions that traders may have are often responsible for those unusual spikes beyond the fair value of a stock or currency. They never last long but they are a nice bet for people who like to make quick profits with lesser risk than normal trades. Counter trend trading has a reasonable payback and works well if the trader is willing to commit enough margins and is still capable of giving the price movement a good wait.


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