Trend following maybe is the most recommended strategy in trading. so many traders using it. on the other hand we know that most of the traders are losing , it means that if you follow the crowd and using popular strategies then you are most likely to be a loser too.
now the question is how trend following specifically and all other popular and well known trading systems and strategies generally could be profitable?
there is a famous approach in betting called “Bet Against Public”
Is it applicable in trading too? if the answer is yes then how?
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I’m not convinced that most private retail traders are trend-followers. In fact right now, a stonking 87% of my broker’s clients with open positions on USD/JPY are short. The fact that price continues to climb on the other hand suggests that the banks continue to buy.
Some good sources, such as DailyFX, actually use broker client sentiment percentages as a negative indication - they recommend buying when most clients are short.
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thanks for sharing your thoughts.
It is a little weird. why they are going against Trend when first thing that we learned in trading is “Trend is your friend” or those educational contents that say us “Trend Following is the best strategy for retail traders”
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Almost all new private retail traders are counter-trend traders. They do not want to hear that trend-following works. They seek reversals and quick, dramatic gains. This is evidenced by their open trades, but also by their obsession with reversal patterns like head-and-shoulders, pin bars, double tops etc. etc. and with the predictive abilities of increasingly obscure technical indicators.
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so Trend following can be counted as a “Bet Against Public” method. 
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The only data we all get and we can all agree on is price.
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it makes sense. I remember when I started trading my first strategy was scalping market for many quick-small profits. then I switched to breakouts to get few quick-big profits 
and at last I forced to accept that Trend following is safest and most reliable strategy specially for traders with small capitals.
I don;t know why but is seams that it is true : “They do not want to hear that trend-following works”
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The problem with the idea of just betting against the crowd is that it assumes the reason for losses is directional. I.e. “They all just trade in the wrong direction, and therefore if I trade in the opposite direction to the masses then I must make money, right?”
But traders with a 70% win rate can still lose, and others with a win rate of <50% can still make money. So the problem is not just in getting the direction right.
The reasons for losses are often nothing to do with direction at all. For example, stops too tight, oversized position taking, holding on to losing positions, premature profit-taking etc.There are so many pitfalls that are non-directional and these are personal to each trader ,regardless of their trading style.
On the other hand, there is also a directional argument. Strategies designed for trend trading do not work so well, if at all, in ranging markets. And markets can often spend long periods in consolidation. Therefore a contrarian approach at the “end of the trend” or in ranging, consolidating markets can work well - if you can judge the levels well. That may be easy in hindsight but not so easy looking to the right of the chart.
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thanks a lot. very informative post.
"The problem with the idea of just betting against the crowd is that it assumes the reason for losses is directional"
"But traders with a 70% win rate can still lose, and others with a win rate of <50% can still make money. So the problem is not just in getting the direction right"
so true
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There’s no denying the rationale behind all in this post, it’s relevant cautionary advice.
But I have to stick with the odds. If a new trader does what new traders do, and does it just as well as those new traders, and uses just as good risk management as those new traders, his odds of success are about 25% (UK and EU bokers continually disclose that 70-80% of active clients are losing money).
Of course, if a new trader is better at doing what new traders do, then his odds will be improved. But what are the odds of a new trader being suddenly that good?
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Yes, most traders are failing, because they haven’t taken the time to learn to trade. They open an account and trade without education, they loss then they leave. I would think that most educated traders don’t lose.
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Whilst I agree with the concept here, I would be tempted to change the “good” to “poor” risk management 
Whilst I have no statistical evidence, I suspect that risk/money management issues are too boring to interest new traders (until it is perhaps too late!)
But I am also a little sceptical that all new traders are quite so homogenous in their choice of instrument, strategy, timeframe, R:R, etc that their poor performance can form the basis of some form of “contrarian” trading strategy?
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Whilst this may be true, let’s not lose sight of the theme of this thread. The OP question is not just another “why do traders lose” thread. The question is whether the fact that most do lose can be used as the basis of a trading strategy in itself. Some kind of contrarian, going against the crowd, formula.
Personally, I do not think it is possible because the reasons are so varied, unidentifiable, and non-quantifiable. But that’s just my opinion! 
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Sure, you can trade against the trend, a lot of skilled traders will do this and make a good profit. If fact, if you’re a good trader you could place two trades, one bullish and one bearish at the exact same time on the same market and you can make a profit on both trades. You just need to know how to manage your trades, which again, takes you back to education.
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Exactly! Whichever trading strategy one selects, be it trending, ranging, scalping, etc, one has to learn how to use it properly, consistently, and with clear risk management. There is no value in just trying to do the opposite of what others may be doing just because they are probably losing. We do not know who “they” are, or what “they” are doing, or where to enter and exit in the opposite frame to “them”.
I think if one tried to always identify and inversely copy what others are doing, it would send one totally nuts! 
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maybe one of the major players here are market makers and smart money. for example now most of the traders believe that EUR/USD is in a down trend so they are trying to going short due to Trend Following rules. but if the smart money decides to go against public even when most of the retail traders are right on their decisions and analysis they can not compete with the powerful Army of Smart Money, and end up as losers.maybe we should consider the volume of trades instead of number of traders to define the crowd .
nah , it can not even work in casino more over forex.
as time passed ,youll find out the true enemies are no one but yourself
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No thing in the world can beat casinos. but the bet against public method is about sports betting.
btw thanks for this great word "youll find out the true enemies are no one but yourself"
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I also think this is the case. There are many books written about the psychology of trading and there is a lot of merit in them. For example Van Tharp and Mark Douglas.
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I think you can beat a casino if you take the time to learn how to play the games and learn a strategy to put the odds in your favour. Casinos rely on uneducated people visiting to play for fun and don’t mid losing, if they only had educated players they would lose.
For example, for small stakes, I used to like playing online roulette on the Williams Hill app here in the UK. Earlier this year, using my strategy in a few months I took my account from £10 to over £150. However, since I withdraw my winnings the app has started blocking me and I’m no longer able to play all the games. Which is basically William Hill blocking me as they don’t like people to win. I have tried playing on the Virgin Games app, but there games are fixed to ensure you always lose.
If you take the time to learn to play the casino games you will be able to win more than you lose. Same in trading, if you learn to trade you will win more than you lose.
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