Counter Trend Trading: Timing Relief Rallies Without Fighting the Bigger Trend

Counter Trend Trading: Timing Relief Rallies Without Fighting the Bigger Trend

Counter trend trading is often misunderstood — and frequently misused — by traders who confuse a short-term bounce for the start of a new bull market. But when you understand the cyclical structure of the market, you realize that not every rally is created equal. Some are simply pauses in a broader downtrend, and if you know how to read them, they can still be profitable — without putting your capital at unnecessary risk.

What Is Counter Trend Trading?

Counter trend trading involves taking trades that go against the prevailing longer-term trend. In a bearish market, that means looking for buying opportunities during short-term rebounds — also known as relief rallies. These moves are usually fueled by short covering, oversold technical conditions, or sentiment extremes — but they rarely change the underlying trend.

And that’s the key: in Steve’s philosophy, counter trend trades are not attempts to catch a market bottom. They’re calculated swing trades with tight stops, guided by cycle timing and price confirmation. You’re not betting on a new uptrend — you’re trading a bounce, knowing full well that the bigger trend remains down.

When Relief Rallies Offer Opportunity

Right now, that’s exactly what we’re seeing.

As of this writing, short- and momentum cycles have just bottomed, while long-term cycles remain in a steady decline. That divergence creates an environment ripe for a relief rally — but not a sustainable one.

Combine that with historic levels of hedge fund short exposure, and you have the ingredients for a fast and aggressive short squeeze. If even a modestly bullish news catalyst hits, it could spark a wave of buying from traders covering their shorts — pushing prices higher.

But remember: this kind of bounce isn’t supported by institutional accumulation or long-term trend reversal. It’s reactionary. It’s tactical. And that’s how it must be treated.

Using Cycles to Time the Trade

Steve’s cycle-based approach is designed to capture exactly this kind of move — but with discipline.

Rather than jumping in because “the market feels oversold,” we look for:

• Momentum or short-term cycles bottoming in the reversal zone

• A price rebound that holds above the 2/3 and 3/5 crossover averages

• Confirmation that short covering is underway (volume, speed, sentiment shift)

Once these elements are in place, the trade setup is valid — but only as a swing trade.

You’re not looking to hold through volatility or chase extended moves. You’re in, you take profits on strength, and you step aside before the longer-term downtrend reasserts itself.

Trade Management During a Relief Rally

Managing a counter trend position requires a different mindset than trend trading:

• Use tight stops — volatility is high, and reversals can be fast.

• Scale out on strength — don’t wait for a home run; relief rallies fade quickly.

• Monitor sentiment — when the crowd starts to get excited, the move is likely near exhaustion.

This is tactical trading, not investing. And it must be done with full awareness that you’re trading against the larger market structure.

Check our post on Market Correction Coming: Let the Decline Play Out While Cash and Inverse ETFs Do the Work for more info.

People Also Ask About Counter Trend Trading

How do you know when a relief rally is starting?

Relief rallies tend to start after a sharp downside move that pushes sentiment and short-term cycles into extreme oversold territory. Steve’s method identifies these points using momentum cycle bottoms and confirmation from price action holding above crossover averages.

Is counter trend trading risky?

Yes — especially if done without structure. The key is knowing that you’re trading a bounce within a downtrend. That means tighter stops, quicker exits, and smaller position sizing to avoid oversized losses.

Can you make money trading against the trend?

Absolutely, but only with discipline. Steve’s system is built on recognizing these short windows where momentum shifts temporarily. You trade the move with precision, then exit before the broader trend resumes.

What tools do you use to identify counter trend setups?

We focus on cycle timing, price channels, and 2/3 and 3/5 crossover averages — not traditional technical indicators. These elements allow us to stay aligned with short-term structure without fighting the broader market environment.

When should you avoid counter trend trades?

When long- and short-term cycles are aligned and trending in the same direction — especially during fast-moving breakdowns. In those cases, the safest move is staying in cash and waiting for a proper setup.

Resolution to the Problem

Many traders lose money by misjudging relief rallies as trend reversals. Steve’s philosophy solves this by applying structure, timing, and strict risk management to every counter trend opportunity. You don’t have to catch the bottom — you just need to trade the bounce without ignoring the larger trend.

Join Market Turning Points

Get daily cycle forecasts, trade setups, and crossover alerts designed to keep you ahead of the curve. Steve’s time-tested system focuses on structure over speculation.

Visit Market Turning Points and trade with clarity — not emotion.

Conclusion

Counter trend trading isn’t about calling bottoms — it’s about recognizing opportunity within structure. Relief rallies can be profitable, but only if approached with discipline.

Wait for confirmation. Trade with a plan. Exit with confidence.

That’s how you trade against the trend — and win.

Author, Steve Swanson