Trend or Counter-Trend.

Who makes the most money – the trader who follows the trend or the trader who anticipates a trend reversal ?

Trend Traders are always late in entering the market. A trend needs to start before a trader can enter. Part of the trend is always over before the trader can plan an entry. Moreover, there is risk of the trend becoming mature just after a trader has entered. After all, no one can say how much more steam may be left in the trend.

The counter trend trader anticipates a trend reversal and enters almost at the point of the perceived reversal. He may often sell at the top or buy at the very lows. This is the stuff traders dreams are made of.

Charles Darwin said “It’s is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change”

The Trend Trader is most responsive to change. He buys after the trend is up, therefore responding to the new circumstances. He sells after the trend turns down, again following the market.

The counter trend trader is probably the most intelligent. He forecasts what the market is likely to do. But this style of trading is fraught with risk. What happens if the market refuses to follow him ?

If a trend trader finds he is on the wrong side of the market, he takes a loss, in fact, often a series of losses. If a counter trend trader finds that the market is not obeying him, he waits for the market to respond. This can result in large profits, but often in large unacceptable losses.

There are very few counter trend traders but a large number of profitable trend traders. Ask yourself, how does a counter trend trader make money. By getting into a trend before it starts. So, it does come down to catching the trend, doesn’t it ? The trend trader is humble and modest. He says the market is wise and “I will try to follow what the market does”.

Blessed are the Meek for they shall inherit the earth.
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