There is an age old battle between these two type of traders. Trend followers wait for the signal of a new trend , jump in when they get it and ride through towards the end of it , or at least try to , and get off when their indicators flash a sell signal. On the other hand , counter trend traders love bottom fishing. They speculate on trend exhaustion , when they spot a trend showing signs of slowing down and ready to turn
around they bet on it. They assume it will go onto other direction to give them a quick profit. Usually they don't hold their positions as long as trend followers do. They are happy with relatively small profit but look for frequent opportunities. So which one has the more profit potential ? Well , that depends on market condition and market condition changes.In one condition trend followers will be getting stopped out again and again while counter trend traders reap rewards more often than not. In another condition trend followers will enjoy a long sustained trend. When counter trend traders will bet on a reversal and it will turn out to be a mere pullback, now it is their turn to get stopped out. The question is , which one you will be ? a trend or a counter trend trader ?As market goes with different phases , I suggest you to master one and then master the other. There are tools available for both kind of trading, so why not take advantage of them? They both have enough potential to reap windfall profit in your pocket if you have a few trusted indicators and a trained eye to spot opportunities. Divergence between price and an oscillator is an old strategy traders use to spot counter trend opportunities. Divergence is a sign that the trend is getting exhausted and ready to reverse. But the most important thing is the fundamental strength of the stock, mostly sales and earnings. Please Keep an eye on that. Also look for any news that may drag your stock down.
around they bet on it. They assume it will go onto other direction to give them a quick profit. Usually they don't hold their positions as long as trend followers do. They are happy with relatively small profit but look for frequent opportunities. So which one has the more profit potential ? Well , that depends on market condition and market condition changes.In one condition trend followers will be getting stopped out again and again while counter trend traders reap rewards more often than not. In another condition trend followers will enjoy a long sustained trend. When counter trend traders will bet on a reversal and it will turn out to be a mere pullback, now it is their turn to get stopped out. The question is , which one you will be ? a trend or a counter trend trader ?As market goes with different phases , I suggest you to master one and then master the other. There are tools available for both kind of trading, so why not take advantage of them? They both have enough potential to reap windfall profit in your pocket if you have a few trusted indicators and a trained eye to spot opportunities. Divergence between price and an oscillator is an old strategy traders use to spot counter trend opportunities. Divergence is a sign that the trend is getting exhausted and ready to reverse. But the most important thing is the fundamental strength of the stock, mostly sales and earnings. Please Keep an eye on that. Also look for any news that may drag your stock down.
Here is an example of Counter trend trade.
Take a look at the chart of TataSteel, trades in National Stock Exchange (NSE). It is trading near its 52 week low. Is it cheap or expensive? a close look at its earnings report will reveal the answer.
on the earnings report we can clearly see on the last quarter earnings have jumped up quite a bit but price has fallen. So you are getting better value at a cheap price. There is a huge MACD divergence shown on the chart. a sign of trend exhaustion. Price may fall a bit from here but the probability of going deep down is low for sure. It has closed @ 292.05 today. If you keep an watchful eye on the charts you may find similar candidates.
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