GM

Buff here.

When I started trading, every article, book and video I study are saying that “The trend is your friend” but my trades are not show friendly result so is it really my friend?

Then I found counter trend strategy that is completely the opposite and it shows better result in much shorter amount of time.

So which one is the better approach?

Short answer: none is better than the other. 

The key is to know how and where to use it.

Long answer below.

Trend VS Counter Trend

Let me give you some context.

I am in pursue of strategy that can be automated in cryptocurrency futures market with high winning rate and possibility to consistently beat market performance.

I don’t have high capital to trade so I need to grow small account in a consistent way but with limitation on screen time for family and full time job, I need automation to help me with the heavy lifting process.

This comparison are purely based on my personal experience in running both strategy so your experience might differ.

Trend trading

Trend trading is like riding a wave. The basic idea is to join the crowd and ride the wave together, whether it is uptrend or downtrend. The belief is that once a trend is confirmed, it is more likely to continue than to reverse.

Trading indicators that are usually used in combination:

1. EMA → trend direction

2. Supertrend → trend direction

3. Wave trend → trend reversal

4. RSI → momentum

5. MFI → momentum

6. ADX → trend strength

My first 2 years as a trader was full of trend trending study. I try to study every resources available to me, backtest, went live trading but it didn’t show consistency.

After 2 years, I looked back on chart and I found that if I had just invested in spot market with simple DCA strategy I would have been more profitable.

Here are my personal hypothesis on trend trading:

1. Trend strategy require to trade on 1 hour or higher time frame to be more accurate so it is a long term play which works much better on spot market rather than futures market.

2. Picture above shows that some LONG were opened in the top if we zoom in and that can take hours/days to close.

3. We need to have a stop loss in futures market to avoid getting liquidated in case trade didn’t go our way and traders who use tight stop loss gets stopped out quite often before the trade went their way.

4. Less headaches. There’s no liquidation in spot so as long as we invest in good asset, we can simply just hold and DCA during a dump to better our average price.

Counter trend

Counter trend is as the name suggest, opposite of trend trader.

The belief is that there’s no wave that will last forever and counter trend traders aim to profit from short-term price movements that occur during pull back or reversal.

Trading indicators that I use in counter trend style:

1. VWAP → trigger confirmation

2. RSI → overbought/oversold

3. Rate of Change → reversal confirmation

4. ADX → trend strength

Going into my 3rd year, I changed my strategy completely into counter trend strategy and I notice much shorter time in a trade than trend strategy.

Here are my hypothesis on counter trend:

1. As the picture above, this strategy allow us to enter trade in local top or bottom where price retrace almost immediately after signals were taken and hit our take profit in short amount of time after trade was taken.

2. It can operate on time frame lower than 1 hour and still get decent result.

3. Counter trader can benefit from having DCA strategy with wider stop loss to help correct entry position if the price move further to opposite direction.

For reference, most of my trades closed in minutes and rarely go past 2 hours. If it did go that long, I cut the trade manually because by counter trade nature, it is not a good idea to swim against the wave for too long because there’s good chance that price won’t retrace.

Risk

When I started, I blow countless small accounts on live trading by trading pair like BCH so it is not without risk. Movement that pump 130% can easily liquidate counter trader who short and price didn’t pull back or reverse to their exit price.

But no risk no reward and like any strategy, we learn from our losses and keep optimizing for better result.

This is all my result that I share on twitter which I will keep updating in the future:

I've decided to trade trend strategy manually in spot market for long term play with no liquidation price to worry about (or at least until I find way to be profitable from it).


As for my pursuit in trading automation, counter trend strategy in futures market for short term play works wonder so far.

Conclusion

Both strategy have risk, pro and con so there is no one perfect strategy that fits everyone, given our individual profile, lifestyle and risk tolerance.

The goal is to develop your own trading system to create an edge that fits your profile and that system doesn’t have to sound smart or impressive, but it must be personal.

For example, the quote “buy when there’s blood on the street” is the essence of counter trading and is one of my reason to go with counter trend strategy.

It may sound silly for others but as long as it makes sense to me and clicked into my system, that’s good enough.

Hope it add some value to your trading strategy.

Thank you for reading.

Buff