Why I Don’t Counter Trend Trade

Counter trend trading is a pretty sought after strategy. Everyone wants to buy a stock as it bottoms or short a stock as it is forming a top. It is the whole buy low sell high idea. Why not buy when a stock is at its lowest and sell right before it turns around. The only problem with this strategy is no one can do it. Sure you have people who may have called a bottom 2 weeks before it happened back in 2000 and are still talked about today because of it, but no one has ever been able to consistently call a bottom and top of a stock. Counter trend trading just isn’t that great of an idea because. 1. It goes Against The Odds Going against the trend goes against the odds. History has shown that a stock is more likely to continue a trend then to suddenly reverse. It is Newton’s law in the stock market “objects in motion tend to stay in motion”. So why call bottoms or tops when it is much more profitable to trade with the trend and be one of those “speculators” that everyone blames when they lose money in the market. 2. Can’t Limit Losses It is very hard to limit your loss when you are trading against the trend. Partly because if a stock is making new highs there are no levels that act as resistance, partly because stocks that are trending can make huge gaps in the direction of the trend. 3. Long time to Turn Around Let’s say you manage to call a bottom or a top. That doesn’t mean you are going to start making fast profits. V bottoms rarely occur regardless of what methods you use. It can take months or years of sideways trending before it reverses. On the other hand following the trend gives you faster results. For more on counter trend trading visit http://www.stocks-simplified.com/counter_trend_trading.html For more on momentum investing visit http://ww.stocks-simplified.com/Momentum_Investing.html