I am quite a fan of Al Brooks’ first book, “Reading Price Charts Bar by Bar“, despite the fact that we trade very differently.
Out of close to 400 pages, there is the one idea which has stuck with me more than any other. From page 384:
“Countertrend setups in strong trends almost always fail and become great With Trend setups…”
The idea is simple.
In a strong trend you will find all manner of reasons to suspect that the trend is ready for reversal. And you’ll find yourself easily tempted to enter counter-trend.
But more often than not, it’s a trap.
When you feel this strong desire to trade counter-trend, do NOT trade. Be comforted by the fact that others will notice it as well. And that they’ll enter.
Then watch their position, waiting patiently until they’re trapped.
The failure of their counter-trend position will often provide a great entry for you, back in the with-trend direction.
Those who trade the YTC Price Action Trader methodology will be very familiar with this concept – timing our entry off the failure of “the other trader”.
This concept came to mind on Tuesday, as I felt a strong desire to enter counter-trend against a strong bearish trend in NQ.
Let’s look at the charts.
Actually, I’m not happy with the exit decisions. But that’s something for me to explore in my trade review process.
In terms of setup and entry… I love this one.
“Countertrend setups in strong trends almost always fail and become great With Trend setups…”
Keep this in mind next time the price bars scream out for you to fade a strong trend.
Is it actually a trap?
And is better opportunity perhaps available if you stand aside and wait for the “other traders” to be caught?
Happy trading,
Lance Beggs