It takes a certain kind of person to succeed while trading against prevailing winds. It’s so much easier to do what everyone else is doing, and hop on the bandwagon for the ride. The problem is followers” tend not to get off the ride until they are thrown off, and it ‘s usually a surprise. Part of the reason is that the psychological makeup of “followers”  often translates into a lack of confidence in their own decision making ability, so they go with the herd instead. Safety in numbers. 

contrarian forex trading

Contrarian Forex Trading

Contrarians on the other hand, delight in taking a different tack. They enjoy being pathfinders and pioneers, or a minority of a minority.  Interestingly, the majority of forex traders fail with rates approaching 95%. The 5% whom are successful, are by the very nature of the game, those whom do and think differently. 

Being contrary just to be different, can get you slaughtered in the markets. The smartest of the contrarians are skeptical enough to question everything, but not cynical enough to believe in nothing. They just take longer to reach a conclusion, but once they do, they tend to move on it with remarkable conviction.  Some points of consideration:

Trading for the right reasons. Some individuals are naturally stubborn or independent. While this can be positive, it can also be negative for traders whom are not testing and evaluating their own perspective in the most objective manner.  Traders must constantly reevaluate their own motivations and choices to determine the why and what for which they do. Indeed, most of the time, traders are better served going with the trend, even when they disagree with the reasons for it. The key is understanding-even if seemingly illogical-why price action may or may not be moving in a certain direction.  For the large part, markets are driven by fear and greed, and any trader-but especially the contrarian trader-needs to see clearly why a certain trend is happening, and look for the signs of a market that could snap back to a more “logical” or reasonable position. For contrarian traders, this is normally the best opportunity, but it can also be a trap for those that have fixed viewpoints. The tree that bends, survives much longer than the rigid one when the wind is blowing in the wrong direction.

Dumb money versus smart money. What really separates the Alphas from the betas and those lesser mortals further down the food chain, is psychology. The Alphas blaze their own course while the rest pile in behind. This can lead them to view others with disdain, but the only thing separating them is performance. In the terminology of those whom trade and invest for a living, the smart money are those whom lead the way, usually working as professionals in the industry. The so called “dumb money,” are the amateurs or retail traders whom are lumped in with those whom do not trade large accounts, or rely on public information rather than top tier research from investment banks. The irony is that many retail traders...the so called “dumb money,” are not so dumb, and do quite well, often better than their professional peers. Usually, this is a result of years of experience combined with intimate knowledge of the markets, plus an ability to discern what is real from what is merely hype. This can allow them to stay in positions while the markets gyrate, confident in their own trade setups.  Contrarian traders tend to fall into this category. They are also the types whom continue to question and analyze long after others have stopped. Indeed, it is this critical trait, one borne of a certain need to doubt everything, that can turn their trading decisions into “smart ones.” Often times, they can be alone, where the crowd has taken a stance opposite to their analysis, trading strategy and/or methods.

Your own analysis. Contrarians do not trust anything, until they have verified it according to their own standards...and vetted a potential trade by meticulously matching it with their guidelines. However, they do tend to be more confident of their ability to deal with various outcomes than other traders. A rather obscure but successful contrarian once said, “I do not try to predict the future. My aim is to influence the future, and prepare for potential outcomes. That is how I make the future.” This trader parses fundamental information constantly looking for subtle changes in the market, while trading infrequently and sparingly reducing risk to the absolute minimum. This is how contrarians survive.

Commitment of Traders. This is one of the favorite tools of contrarian traders. The snapshot of the market-which indicates the positions and sentiment of the largest players in currencies and commodities, is a key indicator for discerning trends. Contrarians will often look for divergence in the data. For example, when there is an overwhelming number of open short positions, and a currency pair had been on a decline reaching near a critical or key support level, the contrarian trader might look to go long. In his or her eyes, the risk reward ratio is probably most likely to be positive, especially if other indicators-fundamental and/or technical indicators (such as candlesticks on a daily chart or oscillators like RSI) hint at oversold conditions.

Contrarians have to be better. Minorities always have to be better. They can never be ordinary or subpar. When one holds an opinion or idea that is not mainstream or not withi

It takes a certain kind of person to succeed while trading against prevailing winds. It’s so much easier to do what everyone else is doing, and hop on the bandwagon for the ride. The problem is followers” tend not to get off the ride until they are thrown off, and it’s usually a surprise. Part of the reason is that the psychological makeup of “followers” often translates into a lack of confidence in their own decision-making ability, so they go with the herd instead. Safety in numbers. Contrarians on the other hand, delight in taking a different tack. They enjoy being pathfinders and pioneers, or a minority of a minority.  Interestingly, the majority of forex traders fail with rates approaching 95%. The 5% whom are successful, are by the very nature of the game, those whom do and think differently. 

Being contrary just to be different, can get you slaughtered in the markets. The smartest of the contrarians are skeptical enough to question everything, but not cynical enough to believe in nothing. They just take longer to reach a conclusion, but once they do, they tend to move on it with remarkable conviction.  Some points of consideration: 

Trading for the right reasons. Some individuals are naturally stubborn or independent. While this can be positive, it can also be negative for traders whom are not testing and evaluating their own perspective in the most objective manner.  Traders must constantly reevaluate their own motivations and choices to determine the why and what for which they do. Indeed, most of the time, traders are better served going with the trend, even when they disagree with the reasons for it. The key is understanding-even if seemingly illogical-why price action may or may not be moving in a certain direction.  For the large part, markets are driven by fear and greed, and any trader-but especially the contrarian trader-needs to see clearly why a certain trend is happening, and look for the signs of a market that could snap back to a more “logical” or reasonable position. For contrarian traders, this is normally the best opportunity, but it can also be a trap for those that have fixed viewpoints. The tree that bends, survives much longer than the rigid one when the wind is blowing in the wrong direction. 

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