Counter Trend Trading
Student’s Question:With trading in the direction of the trend in mind, then I should not have placed a buy after the hammer because the prevailing trend was down. The prudent trade was the sell following the doji. Is that correct?Instructor’s Response:Correct...While there are pips that can be made by going "counter trend", they come at a higher risk. As traders, we do everything that we can to reduce our risk in trades. One of the greatest things we can do to reduce risk is to only take trades in the direction of the Daily trend.Note on the historical chart that you posted, how short and choppy the bullish move after the hammer is and how much longer and smoother the bearish move (in the direction of the trend) after the doji is. That is the type of trading “edge” that I like to have on my side.
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