Counter Trend Trade,
Market Reversal,
Trend Reversal ,
Counter-Trend Trade Ruleset
1. Higher Timeframe Analysis
- Orderblock Hierarchy:
- Ensure that a higher timeframe bearish orderblock is positioned above a lower timeframe bearish orderblock, indicating a potential resistance zone.
- The 12-hour bearish orderblock should align above the 4-hour orderblock. Confirm that no full body close has occurred above the 12-hour bearish orderblock.
- Wick Rejections:
- Multiple wick rejections from a significant higher timeframe (e.g., 12-hour) bearish orderblock signal a strong resistance area.
- Weekly Liquidity Sweep:
- If the weekly draw on liquidity has been swept early in the week, particularly when it’s the third attempt, the probability of further bullish continuation decreases, increasing the potential for a counter-trend move.
2. Price Action & Market Structure
- Line in the Sand:
- Identify a key support level that, if breached, indicates a higher probability of continuation to the downside. This could be a recent low that has shown consistent reactions but is ultimately broken.
- Failure of Prior Bullish Setups:
- If a bullish setup (e.g., based on a moving average or orderblock) that has been consistently successful throughout the week fails, it signals a potential shift in market sentiment, favoring a counter-trend trade.
- Overnight Session Clues:
- If the overnight session provides a significant run-up or rejection (e.g., from the first deviation moving average) without testing key moving averages, it suggests exhaustion and potential for reversal.
3. Entry Signals
- VWAP Rejection:
- A clear rejection from the 1-day 1-minute VWAP Upperband at the pre-market high, especially when followed by a bearish variation on the 1-minute timeframe, presents a strong short entry signal.
- Price Action Confirmation:
- Wait for a close below the identified bearish orderblock (e.g., 12-hour) before entering a short position. The first minute close below this level provides the lowest drawdown entry.
- Stop Loss Placement:
- Place the stop loss slightly above the daily high or above the key orderblock that provided the rejection.
4. Profit Target
- Targeting Lower Orderblocks:
- Aim to take profits at the next significant bullish orderblock (e.g., prior 12-hour bullish orderblock) that the market is likely to test after a reversal.
Counter-Trend Trade Checklist
-
Pre-Market Preparation:
- Check for multiple wick rejections on the 12-hour chart from a higher timeframe bearish orderblock.
- Confirm that no 12-hour candle has closed above the identified bearish orderblock.
- Verify the position of the weekly draw on liquidity and whether it has been swept.
-
Market Open Analysis:
- Identify the "Line in the Sand" based on prior key lows or reaction levels.
- Assess the 9:30 open print relative to the daily draw on liquidity and VWAP bands.
-
Entry Criteria:
- Wait for a bearish variation on the 1-minute chart following a VWAP rejection.
- Confirm a close below the 12-hour bearish orderblock before entering the trade.
-
Execution:
- Enter the trade with a stop loss placed above the daily high or above the 12-hour orderblock.
- Target the next significant bullish orderblock as a profit-taking level.
-
Post-Trade Review:
- Review the trade to ensure it followed the established ruleset and checklist.
- Document any deviations and their impact on the trade outcome.
Key Takeaways for Future Trades
- Prioritize trades where higher timeframe resistance (bearish orderblock) aligns with lower timeframe structures.
- Use wick rejections and failure of bullish setups as early warning signals for potential reversals.
- Place stop losses and profit targets based on well-defined orderblocks to manage risk and maximize reward.
By following this ruleset and checklist, you should be able to identify and execute high-probability counter-trend trades while maintaining your edge in trend-following strategies.
1:43PM. I woke up late today, and didnt trade. interestly enough, the market actually had a reversal today, and from looking at the consistent setup ive been taking, it would have actually failed today, so i actually saved myself a loss.
My goal with todays market reversal, is to try to formulate a theory on how I could have spotted this counter trend trade, and list all of the potential contributing factors to what could have led to this counter trend trade.
I think for the purpose of trying to get as many details as I can, I will start by listing exactly how the price action formulated from the overnight to 9:30 session trading period. The key levels involved, and all of the signals I can list. I will review the chart on the live trading platform, and after I list all of the details of how the price action developed, I will compare and contrast today and yesterdays price action to see if I can find any similarities.
1. Had consistent wick rejections on the 12 hour chart, from the prior bearish orderblock, on this weeks weekly draw on liquidity, which is the stoploss area and buy side liquidity defending the prior 12 hour bearish orderblock, which was also in confluence with the 6 hour orderblock.
2. There was never a full body close of any 12 hour candle above this specific 12 hour bearish orderblock.
3. The 12 hour bearish orderblock, was above the 4 hour bearish orderblock around the same area, and as our trading rule for orderblocks suggests.
- Orderblock Alignment for Trade Entries:
- Short Trades:
- Higher timeframe order blocks should be positioned above lower timeframe order blocks.
So this was a clear signal that a short trade can be taken from this 12 hour bearish orderblock
4. The weekly draw on liquidity was swept at the start of the week, this was the 3rd weekly draw on liquidity that was being targeted by bulls on the week, which likely made the target less probable of being hit.
5. The potential bullish to bearish variation on the 12 hour chart was presented from the prior 12 hour bullish bar in confluence with consistent wick rejections and failures to close above the bearish 12 hour orderblock.
And our other trading rule suggests
- Timeframe Correlation:
- For each order block, wait for the reaction on the corresponding timeframe.
- Example:
- For an M30 order block, wait for an M30 reaction.
- For an M15 order block, wait for a 15-minute reaction.
- This applies similarly to M5, M1, etc.
- Enter only when the price action reaction aligns with the order block's timeframe.
This is the exact rule and trade setup that was presented on the 12 Hour Chart.
6. The target from the 12 hour bearish orderblock short, could have been targeting the prior 12 hour bullish orderblock as a take profit level.
7. The line in the sand, was the exact same low as the bullish 12 hour bar, that had shown consistent wick rejections from the 12 hour bearish orderblock it was testing, signaling that if it was breached, there would likely be continuation downside, and a reversal. And also made the line in the sand much less probable of an entry.
The exact trade of the day setup that was presented for the 9:30 session was as follows. This is the sequence of price action that took place.
1. The market was squeezing into its pre market high at the 9:30 open, after a run up from a long entry opportunity that was presented in the overnight session from the first deviation moving average. Which could have served as a potential signal that buyers were at the ending of their overnight long trade leading into the 9:30 open.
2. Our bread an butter setup for the long side trade this week has been the second deviation moving average, and this moving average was never tested in the overnight. That could have been a clear indication that more room to the downside wwas likely in order to even provide longs a setup on the day worth attempting.
3. The long entry setup provided to longs on todays 9:30 trading session, was at the same exact level, as the draw on liquidity 2 days prior, which was already swept. This could have been another potential indication that it would be a false long signal, with a lower probability of working.
4. The 9:30 open print was above the days draw on liquidity, which was swept in the overnight trading session, likely signaling that it had less support below, and would reverse at the open.
5. The 1 day 1 minute VWAP Upperband, was right above the pre market high, as was immediately rejected on the second minute, creating a bullish to bearish variation on the 1 minute timeframe, from the upperband rejection, presenting the short trade of the day setup with stops at the daily high.
6. The stoploss for the short trade of the day setup was around 35-40 Points
7. The lowest drawdown entry provided for shorts on the day, was the entry after the first minute close below the 12 hour bearish orderblock, which was the main rejection level that we were monitoring.
8. The long setup that was provided all week, which is also a playbook trade, was signaled and stopped out.
9. The line in the sand was immediately broken, and provided no price action reaction signal in its intended bias, signaling a reversal with further continuation to the downside.
10. The prior bullish 12 hour orderblock, served as a great profit target for the short counter trend trade presented today.
I believe that all of these price action signals are currently, the most probable causes for any reason to ever take a counter trend trade.
