Contents:Counter trend trading systems are the tools developed to identify the points where momentum is exhausted, signaling for potential market changes and reversals. Despite the fact that they are not as good as trending systems, some of them are really profitable given a right usage.
What Is a Counter Trend trading Strategy
It’s pretty sure that almost all traders know about Bollinger Bands a very famous indicator developed by John Bollinger in the 1980s, whose function is to determine when reversals are likely to appear.
The counter strategy is composed of two Bollinger Bands beacons which have the same period setting of 20 days but different deviation parameters (one of them is based on the deviations of 2 while the other has deviation parameter of 4).
These Bollinger Bands are responsible for identifying trading opportunities.
Besides, there is also a Moving Average Convergence Divergence (MACD) added in the system in order to affirm the reliability of the spotted signals, enabling binary options traders to avoid false entries more effectively.
Countertrend trading is a type of swing trading strategy that assumes a current trading trend will reverse and attempts to profit from that reversal.
According to the testing result, this technical strategy works best on the five-minute chart, therefore, it’s only suitable for near-term and scalping traders who could spend a whole day monitoring the trading platform.
It's win ratio has been confirmed at 83.45%. There can be more than 30 trading occasions generated daily.
How to use Counter Trend Strategy
The Doubles system could be applied to any financial instruments, including currency pairs, indices, shares, commodities, and cryptocurrencies.
A CALL opportunity is present when the following requirements are met:
- Prices trade into the area between the two lower bands;
- The MACD holds above the zero level.
Conversely, a PUT signal is detected when the conditions below are satisfied:
- Prices enter into the area between the two upper bands;
- The MACD remains below the zero level.
There are some significant entering rules when trading with the Doubles strategy:
- The candlestick of confirmation must be fully close before trading decisions are made;
- Only one position should be entered at a time;
- The order expiry time should be set 3 or 4 times larger than the chart’s time frame.
For example, the finishing time should be 15 or 20 minutes when you trade on the five-minute chart.
If you like this strategy, you might also be interested in this Bullish Engulfing
Pros and cons
- Very easy-to-use;
- Engendering highly accurate trading signals;
- Requiring no custom indicators;
- Allowing traders to be flexible on market changes.
- Necessitating traders to constantly observe the trading platform to seek for entries;
- Requiring a high level of patience;
- Based on reversal-seeking principles, hence, the strategy isn’t suitable for beginners.
Despite the fact that counter trend, its high win-rate in addition to a string of big advantages mentioned above rank it among the world’s most profitable binary options systems. Using the strategy to trade, we believe that binary options traders could become very flexible on market changes and reversals. Nevertheless, please have in mind that since the strategy belongs to the counter-trend group, it necessitates users to have an intermediate knowledge of technical analysis, including price action reading. Therefore, we don’t recommend the strategy to beginners.