*Originally published in French on objectifeco.com; the post itself carries no publication date. The site was purged in 2016; this text survives only in the Internet Archive. Snapshot. Translated, not rewritten: what follows is the original argument as it was made, including what time has since proven wrong. Where that happens, you'll find a note from the desk, dated 2026.*
Unlike trend-followers, the traders who succeed at counter-trend trading, whether systems or individuals, all carry something in common: 5 to 10% of their trades are heavy losers.
That's baked into the style. It isn't an accident.
When you trade counter-trend, you're betting that the market's excess is going to correct, and that things will snap back to normal.
But anyone who's traded long enough knows that, from time to time, the market will take a very long while to correct certain excesses. Every single time that happens, every counter-trend technique out there fails, and it produces one heavily losing trade.
The difference between the ones who succeed at counter-trend trading and the ones who fail lives entirely in how they handle these episodes.
I'll pass quickly over the traders who become simply unable to cut a losing position. Time will eventually take their account down in some extreme market event they tried to fight.
You might think a fairly simple risk-management fix solves the problem of these occasional losses: put a stop on every position, so you're taken out the moment the market overshoots, before the loss grows any bigger.
The trouble is, once you start using stops, you'll automatically get stopped out of some positions that would have turned into winners. So you mechanically make your losses bigger while shrinking your gains. You end up dragging down your expected return so hard that the more stopped-out trades that would have turned profitable, the closer you get to a system that simply can't win.
That's the whole paradox of counter-trend trading. If I don't manage my losses, one day the market will do something so extreme it will wipe out my account. But if my risk management isn't loose enough, I'll shrink my potential gains and drag down my win rate, which is the actual key to winning at this.
Having watched thousands of accounts and any number of counter-trend systems, the real secret to success doesn't live in risk management technique.
The real balance lives in the leverage you use, in how your maximum risk sits against the size of your trading account.
The market will, sooner or later, throw up something so exceptional that if you've taken on too much risk, your account blows up.
The only ones who make it through counter-trend trading are those able to withstand an event like that, with enough capital, and enough psychological discipline, to get back in the saddle and treat it as simply part of the deal, something to be accepted as a feature of the style they're trading.
As I said above, those people are so rare that everyone who's kept up appearances, sometimes for years, has eventually run into that exact situation, and it's taken their account down with it.
After fifteen years in this business, I'm fortunate enough to know exactly one individual counter-trend trader who's managed to bring his trading account through every trap the market throws in his path.
Part of a series. This article belongs to Trading Styles: Every One Sends You a Bill. Related: Winning Traders, or Consistent Traders? and Trend Trading: The Key to Success. Background: mean reversion in the Ouinex glossary.
About the author. Samuel Rondot has traded financial markets since 1995 and is self-taught. He wrote a book on technical analysis, published a long run of trading columns between 2009 and 2016, and now runs the algorithmic trading desk at Ouinex.
Trading leveraged products carries a high risk of loss.
