“In a 60% system, you’re likely to have seven or eight losses in a row during 1000 trials. But you could easily have five losses in a row in such a system during a 50 trial run.” – Dr. Van K. Tharp

Hello:

Traders tend to remember negative trades more than they do positive ones. When we sell and lose, we’d wish we’d bought, and vice versa if we’d bought and lost. Sometimes one may follow a late trend and still be right or wrong. Sometimes one may anticipate a new trend and be right or wrong. Countertrend strategies have been used by many traders, including me, for a long time. When we lose on a trade, we’d simply wish we could’ve made money if we’d gone against our signals. We might think that we could survive simply by going against our normal trading rules.

3 years ago I scalped constantly against the trends on a demo account for one year, but there wasn’t any long-term survival. I wanted to know if I could make consistent profits by going against the signals generated on ITU Global strategy. To this end I created one demo account on April 19, 2010. It had a risk-to-reward ratio of 1 to 3 as well. The results of the counter-trend strategy were attached with this article. Countertrend trades are very short-term and when you’re wrong they can be unforgiving, whereas trend trading can be forgiving since traders can stay in the trade for a long period of time, which may be more suited to most traders. Countertrend trading also creates a negative mentality as you’re constantly looking for a trend to end. The conclusion is that it doesn’t make sense at all to go against the trend – even if riding the trend brings occasional losses. Most respected trading professionals are trend riders.

Last week we finally closed our long-term profitable short position on EURCAD; going long on the following day. We also closed a loss on AUDJPY and went short on the cross the following day. Our open positions are displayed below:

AUDUSD

Order: Buy

Entry date: June 14, 2010

Entry price: 0.8651

Initial stop: 0.8451

Trailing stop: Not yet

Status: Open

Profit/Loss: 99 pips

NZDUSD

Order: Buy

Entry date: June 14, 2010

Entry price: 0.7005

Initial stop: 0.6805

Trailing stop: Not yet

Status: Open

Profit/Loss: 135 pips

AUDJPY

Order: Buy

Entry date: June 14, 2010

Entry price: 77.22

Initial stop: 87.25

Trailing stop: Not yet

Status: Open

Profit/Loss: -92 pips

EURCAD

Order: Buy

Entry date: June 14, 2010

Entry price: 1.2824

Initial stop: 1.1815

Trailing stop: Not yet

Status: Open

Profit/Loss: 0 pips

An Observer’s Trading Results: One of my readers opened a demo account at FXOpen and started placing trades based on my signals (he named the demo after my strategy). He places trades according to my most recent signals. The differences are that he’s using 2% initial stops with his trades and uses no trailing stops; he rides the trends until there’s a significant change. I personally use trailing stops especially after some 200-pip profits. Attached are his results, (his trading results would be attached on weekly basis). So far he has profits of 175 pips on AUDUSD, 193 pips on NZDUSD, -91 pips on AUDJPY and pips -4 pips EURCAD (after closing a previous loss on AUDJPY).

There are a plethora of trading systems around us, and since all isn’t gold that glitters, the most useful method is to test a system on live markets for e few months before you decide whether it’s a roaring breakthrough or a crashing flop. A transitory stroke of luck for a few days shouldn’t lead to a hasty conclusion. Risking low in trading will continue to make sense. High risk for maximum gains can look so good that it’s hard to think about possible downsides. Approaches that are detrimental to long-term trading survival are easily embraced by most traders, and unless the problem is corrected, significant drawdowns follow. The markets are full of reversals, and we as traders are not excluded from disappointments that may want to make us give up. However those who’ll succeed don’t give up.

Welcome the forex world – a world of financial freedom. Let me conclude with this quote:

‘A dream is a mental picture of a preferable future.”— Sam Adeyemi

Your questions and opinions are highly welcome.

Thank you.

With best regards,

Azeez Mustapha

Forex Signals Strategist, Funds Manager &Coach

Email: amustapha@fxinstructor.com

Countertrend StrategyObserver’s Trading Results

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