Counter trend - building a set of trade rules

I view trend and support and resistance levels as the two most important concepts in trading. Trend is time frame dependent so what doesn't work on 4hr counter trend might give a scalp trade on 1 min.

For the idea of developing a set of counter trend rules I'm going to discuss the 4hr chart. Trying to get a set of rules that assumes the D chart has not yet signaled a turn but will give trades in terms of 1hr set up and 15 min entry. Trades that should give some follow through on 4hr.

The best advice I can give is stick with the trend, use support and resistance levels and especially for GU and EUR the W pivots. Stick with the trend until you have very good reasons not to i.e. support/resistance level or W pivot, higher time frame divergences, price action sticking for hours proving it wants to reverse, engulfing closes that break the immediate range.

If in doubt leave the trade. Then don't worry if it goes in the direction that you thought it would. There is a good chance the trend will resume.

As an exercise put up EUR or GU 4hr chart, put on RSI (I use 8 rsi 8 sma) with a 21 ema and a tight price following ma, I use 8 lwma.


Have a look at how long the moves are when RSI is either above or below the 50 RSI level. Then have a good look at the moves against this that work or fail? So have a look at counter trend sells above RSI 50 level and buys below RSI 50.

Possible counter trend factors:

- A support/resistance level or W pivot
- Angle of 21 ema
- Time of day (London open, pre/early US open, London Close)
- Change in candle colour
- Close on the other side of 8 lwma
- RSI crosses
- Divergence
- Lower high/higher low engulfing close, morning/evening star pattern i.e. a multi candles pattern, change in flow
- RSI move through 50 level

You might notice that candles that change colour are poor signals even if at a support/resistance area or W pivot. You might see a cross of RSI at a support/resistance area, with a lower high/higher low engulfing close that follows divergence has a high chance of success.


I don't know what will jump out that you will see. What I do know is you should be able to put together a check list that will help avoid many failed counter trend trades. Always realising that until D has signaled a turn you are counter trend and need to change profit targets and always be looking for trend to resume.


My list is at http://vantagefx.blogspot.com/2012/12/counter-trend-items-to-consider.html and I also look at  specific times to avoid counter trend http://vantagefx.blogspot.com/2012/07/trend-continues-avoid-weak-preearly-us.html.