Minimizing the risks

There is no way around the risks inherent in trading counter to the prevailing market action. All we can do is reduce the risks as much as possible by using the tools available. Happily, there are ways to do this.

First, always be aware of the longer-term picture. If the market you are planning to trade is in the middle of a strong trend, going against that action is probably one of the quickest ways to lose money. Wait until the momentum starts to ease; this will reduce your chances of getting caught on the wrong side of a breakout.

Further, this is a good time to mention a candlestick caveat: Beware of reversal patterns signaled by candlesticks in a trending market.

So what should we look at in conjunction with candlesticks to lower our risk in the countertrend trades I am

suggesting? For one, there's John Bollinger's band width indicator (BWI) as a trend indicator, which can be used by monitoring the area between the upper and lower bands. 

I like to use the BWI as an indicator (look at my charts) of a weakening trend; I want to jump in when the slope of

the BWI line starts to decrease . This is the first signal that the trend is petering out, and that at this point countertrend trades are reasonably safe.

There are, of course, other technicals that you can use. Bollinger bands themselves can be helpful, among others.

Select the tool or tools that make you most comfortable.