One strategy to look out for to enter a trading position is the counter trend. Counter trends are reverses in a larger pattern – so what we’re looking for is a slight reversal during a long term trend. For example, if the monthly trend is ascending and we suddenly see an hourly descending trend, this could suggest a good entry point.
Trends are Fractal
There are many different scales for every asset that is trending – ranging from 1 week to 1 minute. Each of these charts look at a completely different time frame and indicate completely different perspectives on what is happening on the market. This means that the 1 minute chart may show completely different trends and patterns to the 1-day chart. This is what we mean when we say trends are fractal – each time scale represents a completely different view of trends and patterns.
Identifying the Counter Trend
In this following example, we see a general increasing trend in the price of bitcoin between Dec 2019 and Feb 2020. Wee see that gradual rise from $6800 to 10,000, moving comfortably between the channel marked by the red line. This is very clearly in the 1 Hour chart as we see that gradual increase in price.
However, within this overall increasing trend, we can also spot out counter trends in the 15 minute chart. This is counter trend is seeing as a decreasing trend on the 22nd of December, as the price drops from $8600 to $8300. This clear reverse in the overall trend is well captured within the two marked trading channels. By spotting out these reverse trends, we can identify positions where we can enter a long position to take advantage of the overall upward trend.
This demonstrates the fractal nature of chart patterns. They look the same no matter what direction, no matter if they’re counter or sub trends. All trends look the same regardless of timeframe. And what’s cool is you can use these counter trends to find good trading opportunities. If you’re in a strong weekly uptrend or a strong daily uptrend and you’re getting short term two, five 15 minute downtrends and you know overall that you’re strong and you’re moving to the upside, you can use those kind of trends, find reversals, make entries, and then ride that swing back to the upside.
Larger trends influence these smaller trends and identify new, smaller trends can really be a key to trading success with trends overall.