Trend and counter trend trades on futures are easy to identify using the ATR strategy in combination with the ADX strategy and one higher timeframe. For example, on the Nasdaq 12 minute chart below there are two trades identified. One is an ADX magenta retracement on the higher timeframe (180 minute chart in this example) and the other is a trend trade going into the higher timeframe (again 180 minutes in this example).
Trend and Counter Trend Trades on Futures and Forex – Rules
The rules for trend and counter trend trades on futures and forex are the same. Using the TradersHelpDesk ADX indicator, if the higher timeframe has an ADX magenta peak, then the ATR on the shorter term timeframe must be the opposite color. In this case, the ATR on the higher timeframe is red so we would anticipate a blue ATR on the lower timeframe. Price must approach the ATR and as it is approaching the ATR an entry is generated. We expect price to retrace on the higher timeframe to the ATR. The ATR on the higher timeframe was at 4540. The entry on the smaller timeframe was 4508 and the exit was at 4520.25. The gain on the trade was 12.25 points. Another trade was generated (second buy on chart) and, if taken, resulted in a loss of 2.25 points.
Then a trend trade appeared. The ATR on the higher timeframe had pulled down to price and price did not break the ATR on the higher timeframe. This generates an entry into the trend at the ATR on the lower timeframe. In this case, the entry was at 4512 and the exit is still pending. So far the trade has made about 38 1/2 points and the worst case scenario would be 29 1/2 points (based on the solid red line).
These three trades resulted in two winners and one loser with a gain of 39.5 points per contract even after the minimal loss.