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How To Trade Counter Trend Trades Safely And Profitably 

Last Updated: August 2, 2022

By Rayner Teo


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In today’s episode, you’ll discover how you can trade counter-trend trades profitably with low risk.

So tune in right now…


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Hey, hey, what’s up, my friend? In today’s episode, I want to share with you how to trade counter-trend trades safely and profitably.

But before we get started, let me just explain briefly what’s the difference between counter trend trading and catching a falling knife. Because many of you might think that they are all the same.

Catching a falling knife versus counter-trend trade

Well, catching a falling knife to me simply means that stock keeps hitting lower and lower with no end in sight. And every time it goes lower, it hits an all-time low.

On the other hand, what is counter trend trading?

Counter-trend trade for me just means that if a stock heads down lower and form a new all-time low. Then the next day or the next week there’s a huge rally, maybe a dead-cat-bounce off the all-time low.

But then the price later heads down lower to retest the previous all-time low that it has done previously.

At that point, as it approaches the all-time low, that could be a potential counter-trend trade because now you have a frame of reference to plan your trade.

This is unlike catching a falling knife where you don’t have this frame of reference because every day the market just keeps heading lower and lower.

The key things for a counter-trend trade are that you must have a frame of reference where you can time your entry and manage your trades which is not possible when you’re catching a falling knife.

So, for counter trend trading…

1. You want to have a point of reference

It could be an all-time high, or it could be a multi-year high, or it could be a 52-week high, it could be a key support resistance area, etc. You must have a point of reference that you can refer to when you’re counter trend trading.

2. You want to see a strong power move approaching your point of reference

Let’s say you trade currencies, for example, the EUR/USD, and maybe it had dipped down to an all-time low to 90 cents and then it had 500 pip rally and then starts heading down lower again to approach the 90 cent price level.

When it approaches the 90 cents level, you want that move to be fast and furious with big bearish candles. The more bearish it is, the stronger the momentum is, the better. Because that’s going to entice short traders to short the breakdown.

When it breaks below the 90 cent level which is an all-time low, many traders will get excited to short the markets to zero. That’s the thought process of many traders around the world as they look at this bearish price action on the charts.

And here’s the thing, a lot of traders fall into this short trade and imagine if the price breaks below the all-time low but it does this next…

3. You want the price to do a false break

This means that the price breaks below the all-time low on the EUR/USD and then reverses back in the opposite direction and closes strongly for the day. At this point, you can imagine there those traders who chased and shorted the breakdown are now in the red.

This is where a counter-trend trader can step in because the market has signalled that it tried to break below that all-time low but failed, and instead, it rallied higher. A counter-trend trader can come in to go long.

This time around, it’s not reckless counter trend trading because you can set your stop loss below the swing low that was formed. Sure, if the downtrend continues, you’re out of the trade.

But at least now you have a level where you can reference to enter and exit your trade.

4. Set a proper stop loss

You can just set your stop loss below the swing low because there’s no reason to stay in that trade any longer if the swing low is broken. Because likely the downtrend will continue and you want to get out of the trade.

5. Have a conservative profit target

As a counter-trend trader, if you enter on a false break near the all-time lows, you want to have a conservative profit target. Don’t aim for the stars or the next 2000, 3000 pips.

Because what happens more often than not is that you’re just going to get a brief 200, 300 pips rally before the market is exhausted and then it collapses lower, where the downtrend resumes. That’s usually what happens in counter trend trading.

As a counter-trend trader, you’re not trying to get everything like in a buffet. You’re just trying to get just one small bite that’s it, and you get out of that trade. This is how you go about trading counter-trends in the markets.

We can apply these to currencies, to cryptos, etc., the concept would still work.

If you’re curious to discover more on counter trend trading strategy, then check this out I’m Also a Counter Trend Trader: You May Not Know this.

Here’s a quick recap…

  1. Have a point of reference to time your entry – don’t catch a falling knife
  2. Look for a strong power move into this point of reference
  3. Look for a false break – let the price take out the extreme lows only to get rejected and closes higher for the day
  4. Set a proper stop loss – it can be just below the low of the false break candle
  5. Have conservative profit target – don’t aim for the stars because it’s unlikely you’re going to catch the start of a new trend; you’re likely to get a brief rally before the downtrend continues

With that said, I wish you good luck and good trading. I will talk to you soon.


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