First of all an exception. Sometimes it does happen that the trend is so strong that I would ignore all counter trend signals. Counter trend candles are so weak they inspire no confidence at all. I can recall instances that lasted for weeks/months with EUR, EJ, EURCHF when I had absolutely no interest in any counter trend trades.
Please see the link http://vantagefx.blogspot.com/2013/02/trade-rules.html for the counter trend rules:
Trade counter trend from proven support and resistance levels and W pivots. Only when price has proven over a period of several hours that it does not want to continue in trend (specifically not 1 x 1hr candle). I will look to assess divergences and candle engulfing closes for patterns (higher low/lower high, double top/double bottom, morning/evening star) on 1hr that by their very definition require several hours to complete.
A few words of clarification:
Proven support and resistance. No hard and fast rules but visually price should have historically struggled with that level. I am looking to trade the reaction. Has price visibly reacted differently than before. See the 4hr chart for GU. 1.5400 was a proven level. On 17 April we had upper wicks and dojis in the Asian session. That can explain the muted reaction but when London open price fell. When price challenged that level again on 19th the reaction lower was immediate. On the 1hr, if the green doji was followed by an engulfing positive close the focus would have been on trend continuation higher. Instead we had an intra day lower high 3 bar reversal negative close. Price has proven over multiple candles that it does not want to continue higher.
Divergence. I don't trade higher time divergence, 1hr and higher, as a standalone occurrence. So it needs to be at a level that logically should support the change of direction. Proven support/resistance, pivots, fib levels, trend lines/channels. Price action must confirm the divergence. For me thats the candle patterns I specifically look for being double tops/bottoms, higher lows/lower highs, morning/evening star patterns, 3 bar reversals. I have done several posts on higher lows following divergence and lower highs following divergence.
http://vantagefx.blogspot.com/2013/03/4hr-charts-w-pivots-lower-highshigher.html
http://vantagefx.blogspot.com/2013/03/recap-20-mar-eur-higher-low-following.html for the EUR trade
http://vantagefx.blogspot.com/2013/04/analysis-of-losing-trade-then-lower.html
There are many more examples.
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