Trend or counter trend?

[JollyGreen]

I wanted to write this post to give my personal opinion on how people view the markets in different ways. The references I make are all based on UK Horse racing.

When sitting next to a new or novice trader there are times when I look at a market and can see a potential trend developing. The person with me is not seeing the same thing. There are also times when I cannot see a damn thing and have no idea what is happening at that moment.

The two scenarios elicit two responses and I feel many can learn from them.

1. When I can see a trend and they cannot, they often get very negative and say they will never be able to be that good. My response is simple and I try to be positive. It is generally “of course you will, you just need to know what to look for!”
2. When I haven’t a clue what is happening it once again elicits a negative response. They generally say “Why aren’t you doing something?” Or “Well if you cannot see it then I have no chance!” Again I reassure them they cannot see what isn’t there and neither can I.

Some people take the positive on this whereas others remain negative. The latter will find it very hard to break this negativity so I work hard to stop it there and then.

This is all down to mind-set and I know many of you will have read my other posts on this topic. If you haven’t read them then I think they may help. So to the matter in hand, do you go with the crowd or against it? Some people talk about trend or counter trend but it all adds up to the same thing.

Ask yourself how you perceive a market trend and if you are more likely to go with it or look to go against it?

This subject can stir the emotions so let me state it here and now, I am not trying upset anyone or belittle their point of view. I merely want people to think about the subject, consider the views and perhaps improve their trading.

I get a lot of people who record themselves trading and then ask for my opinion on their methods. It isn’t possible for me to comment on all of them but if I know them I try and help them out. The one thing I see the most is their desire to oppose a trend and it astounds me how dogmatic they become in these types of situations. This is where I feel a lot of misinterpretation kicks in. If you watch Peter’s videos he occasionally talks about looking for a reverse in a trend or for a trend to be slowing down. He then catches the reverse move and makes a profit; I also employ similar tactics. When I then chat to him about this it is clear we agree this is not against the trend. We are looking for the reverse but NOT attempting to buck the trend or go against it.

I will try and explain this in simple terms.

The market is powerful and if it wants to move in a certain direction it will. This is driven by money so an individual is placing themselves in danger if they try and outmuscle the market. Think of the market as a train leaving a station, it starts slowly but it quickly gathers momentum. Ask yourself if you would rather jump on the train and enjoy the ride or stand on the track in its way? I know which one I would prefer! You can of course abstain and if there is any doubt then simply stay out!

I wrote a post here Back Lay or abstain? that reflects this subject very well.


So how do we deal with this? Well my view is quite a simple one and I tell this to any traders who will listen. Treat the market as your friend and go with that you see. I appreciate we see different things and I mentioned this at the start. What’s important is you trade what you see, who remembers Catchphrase? If you get it wrong, close the position and then ask yourself why. After a while you will start to understand the error and then steadily improve. If you treat the market as your enemy or become suspicious about a trend you are doomed. There is already a delay in the market and while you are trying to determine if the market is trying to trick you the delay is getting bigger.

Some common things I hear.

• I know you (the market) are trying to catch me out, you’ll drift if I back or shorten if I lay
• I know that horse wants to shorten but the spoofers on that horse are stopping the move
• The price has moved too far so there is no value in backing/laying

There are plenty of others but those will suffice, I am sure you get the idea. I was just like this when I started and it took me a fair amount of time to break this thought process.

To finish I want to talk about the word value. This is basically a gambling term which has found its way into trading terminology and you would be better off forgetting it. Let’s imagine a horse trading at 2.96 when the money starts to flow into the market. The preceding race has just finished and everyone is turning their attention to this market. They clearly like the favourite whose price drops to 2.84 very quickly. This is when I hear people saying “I missed the value, I should have joined at 2.96 or 2.94 so now I cannot join this trend” This is usually confirmed in their mind when they say “I cannot join now, WHAT IF it reverses?!” Try not to get caught in this “what if” mind-set because you will really struggle if you do. So let’s imagine we did back at 2.86, the price is now 2.84 and then money is still coming. The price shrinks to 2.70 so surely that is a profit? You cannot expect to catch the top of the trend and then exit at the bottom, I think Jeff calls that “catching a falling knife”.

Some will be screaming “what if it does reverse after I join?” That is quite simple, get out and re-evaluate the market, BUT you only do that WHEN it reverses!

Have a look at the markets this afternoon or when you can and see if this occurs. Try to watch carefully while treating the market as your friend and I think you should be pleasantly surprised by how it frees up your mind and allows you to see what is actually happening rather than what you want to see.

I’d appreciate your feedback and will try to answer any questions you have. In the next post I will discuss why the “what if” mind-set virtually guarantees you will fail.

[Kai]

I don't have any questions because I'm not really into horse racing but I just wanted to commend you on your effort JG. I enjoy reading your posts, eloquence is a rare trait in people.

[JollyGreen]

I don't have any questions because I'm not really into horse racing but I just wanted to commend you on your effort JG. I enjoy reading your posts, eloquence is a rare trait in people.

Thank you Kai, your kind words mean a lot to me!

JG

[LeTiss]

Good health for 2016 JG - hopefully it will allow you to post more often

[Dallas]

Thanks for posting again JG, I have always enjoyed reading your detailed posts over the years long before i actually registered on the forum and will continue to do so and they have certainly helped me in many area's over the years - I for one am always looking forward to the next one.
What i like is no matter what your experince level there is always something for everyone.

PS - Wish you good health also for 2016
Well done JG

[convoysur-2]

Hi Jolly .
Hi Thanks for the post
I like the bit where you say you look at peoples trading videos to help them ,so ive sent you 1.247 hours of trading videos its quite a big download ,but hang in there you will get through it.
no hurry ,it should keep you busy till mid march
Good man thanks,
Marc