What will happen if you take trades in the opposite direction?
Will you make more money?
Lets say, there is a trading strategy that doesn't have good win rate.
Like the Basic Aroon Strategy we tested 100 times in the last video.
Since that strategy only produced a win rate of approximately 40 percent, one of the top
comments on that video, was to test it again, but by taking trades in the opposite direction
of the strategy.
Surely the 40 percent win rate will turn into 60 percent, right?
Well, why don't we find out.
In this video, I took 100 trades in the opposite direction of the Aroon Trading Strategy, and
here's what happened.
I'm not going to explain the strategy in this video again, since YouTube will think I'm
repeating stuff again.
But if you want to learn more about the aroon indicator, watch my previous video on the
Trading Rush channel.
In my Aroon video, since I used the Parabolic Sar indicator to set the stoploss, the parabolic
sar when taking opposite trades, will be on the opposite side.
Let me explain.
In the proper aroon setup, when aroon gives a buy entry signal, the parabolic sar is below
the price.
In this setup, we can easily set the stoploss at the parabolic sar.
But if you are trying to take opposite trades, the parabolic sar is on the opposite side.
So to fix this problem, I have simply set the stoploss at the same distance in the opposite
side, as I would set it in a normal aroon setup.
As always, I have used the Official Trading Rush App for backtesting, and while the backtesting
clip is running, here are some important points I found by taking opposite trades.
Number 1.
I took trades on the same pair, and on the same time frame.
Since I bought when aroon said go short, and sold when aroon said go long, I lost most
of the trades that I had won with proper aroon setup.
That's predictable, but here's the interesting part.
Number 2.
You might think, that since I lost the trade I had won last time, the lost trades in the
last video will be profitable this time.
Well, yes, but no.
In my last video, I said, I lost most of the trades because Aroon was giving entry signals
near the end of the trends.
When I took opposite trades, the trades I lost in the last video were profitable.
But not all of them.
You see, when a trend comes to an end, the price doesn't make a big move in the opposite
direction immediately.
It can simply go sideways before going in the opposite direction.
I always backtest with the reward risk ratio that is more than 1, since most traders will
use something that is greater than 1.
What this means is, the price has to make a bigger move in the direction of our entry.
Some of the trades I lost in the previous aroon video were profitable this time, because
price had made a big move in the entry direction.
But sometimes, the price was moving side ways.
And since I had a reward risk ratio of higher than 1, in the sideways market, my stoploss
was hit before the profit target.
So, after taking trades 100 times with opposite aroon trading strategy, I still got the win
rate of approximately 39 percent.
The proper Aroon strategy had win rate of approximately 40 percent.
This strategy is also a hit or miss.
The profit graphs of both of these strategies also look very similar if we flip it upside
down.
So what did we learn from this experiment?
Something I have said in one of my previous videos.
Most of the time, price is in a range.
And most money is made, when the price is trending.
So you can't simply take trades in the opposite direction of a not good strategy, and turn
it into a money making machine.
That's all.
Now you know a little bit more.
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