【Twice-Monthly Development Story Part 2】Going too far, then coming back — the idea of counter-trend
In Episode 1, I talked about why I created a “counter-trend EA with stop loss.” This time, I will delve into the root of that idea—the concept of“counter-trend”itself. What Twice Moon assumes is one simple premise.Markets overshoot and tend to reverteventually. Why I think this, and when this premise can be wrong. I will整理 them in order.
The way you approach the market can be split into two. One istrend-following. Ride the direction of movement and bet that the momentum will continue. The other iscounter-trend. Aim for the recoil after an overshoot, betting on a return.
Twice Moon is the latter, counter-trend. When the price has extended in one direction, we seek the moment when momentum eases and reverses. While trend-following bets on continuation, counter-trend bets on return. Even looking at the same chart, the target area is exactly inverted.
Short-term price moves are often swayed by emotions. If the decline continues, you fear it will go further and dump, and if the rise continues, you fear you’ll miss out and buy more. After a pause to calm, these overshoots tend to pull back toward an average level. This ismean reversionthe idea.
The image is like a stretched rubber band. The farther from the center, the stronger the force to snap back toward the origin. In counter-trend, “overshoot” refers to how far away from the usual average the price has deviated. As shown in the diagram below, the price tends to roam around the center line and reverses more easily at the far ends that have moved away.
※ Illustration. The idea is that price roams around the average (center) and tends to reverse at the far ends.
Overshoot does not only occur downward. It can overshoot both ways: oversold conditions and overbought conditions. If it falls to the bottom, it’s a buying opportunity; if it rises to the top, it’s a selling opportunity.
Twice Moon targetsovershoot in both directionsindependently. One waiting for the buy impulse, one waiting for the sell impulse. Like two moons floating in one sky, holding buys and sells independently—that is the core design philosophy behind the name “Twice Moon.”
If you’ve read this far and think it sounds too good to be true, you’re sharp. Counter-trend trading has a clearly critical pitfall.Overshoot further overshoots—a moment when a strong trend forms.
When a strong trend emerges, the rubber doesn’t just snap back; it can extend further. It can eventually stop. If after buying because you think “it’s already too low,” the price continues to fall, the counter-trend is driven through. That’s why, as discussed in Episode 1, Twice Moon includes astop loss (SL)to be used in conjunction. Enter under the assumption of returning, but pull out early if it doesn’t return. Counter-trend and stop-loss work in harmony.
What’s important is not deciding overshoot by feel. Buying just because it dropped a bit is just averaging down. Twice Moon quantifies the degree of overshoot with rules and only moves when a certain criterion is exceeded. Judgments are made only on confirmed bars, and it does not chase wicks that frequently fake out.
How to measure overshoot is the heart of Twice Moon. I will discuss concrete methods in a future episode.
- Counter-trend bets on the premise that overshooting markets tend to revert to the mean
- Overshoots can occur in both directions — therefore hold two separate positions, “two moons”
- In strong trends, reversion may not occur — limit this weakness with stop-loss
- Measure overshoot with rules, and trade calmly on confirmed bars
Next time we will discuss “Why it is EURUSD-only”. Among many currency pairs, why did I narrow it down to EURUSD? I will explain the reasons. I’d be happy if you stay until the end.
※This article is intended to provide information and not investment solicitation. The operational results presented are historical performance and do not guarantee future profits. FX/CFD trading carries risk. Please make investment decisions at your own risk.