Top traders often use counter trend lines to take advantage of market movements. Here’s how they do it.
First, let’s define the two components of a counter trend line. First, it shows a market movement that’s smaller than the overall trend. Second, it runs in the opposite direction. So if your trend line is bullish, you can draw a counter trend line on any smaller bearish movement. Usually these are drawn manually.
So, let’s say a trader is hoping to take advantage of a bullish market multiple times. One way they could do this is to trade every time a bearish counter trend line is broken. (The opposite also works on bearish markets, trading on bullish counter trend lines being broken.)
To trade on a counter trend line, look for a currency pair with a counter trend that has been taking shape. Choose your lot size, select a stop loss and a target.
Remember to factor in your spread with your broker when you place your trade: You’ll want to be sure to spot enough of a win to cover the spread on your gain, and not have a setup that closes out a win that’s too small to exceed the spread.
Need more tips like this? MTI students have complimentary access to the Jumpstart Trading Room, a weekly live session designed to teach you best trading practices.
Automated Counter Trend Lines in Forex
With automation, you could set the trade to take shape whenever your preset plan occurs in your charts, even if you’re not watching the currency pair at the moment when it happens. (Your computer or your VPS will need to be running, however.) You will receive an alert when the trade takes place, when you are using charting software such as SmartTrader.
If one pair doesn’t have the setup you’re looking for, your charting software should make it easy to find another pair that does have counter trend lines you can trade on.
Bonus tip: When working manually, draw your upward or bullish trend lines beneath your candles in your charts, and your downward or bearish trend lines above your candles. That’s how the pros do it!
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