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Tuesday, 12 March 2019

Trading Strategy For Forex Traders

Contrarian Trading Strategies are generally known as a tactic carried out by traders and stock investors by buying good stocks when prices drop. However, did you know that this Contrarian Trading Strategy is also popular among Forex traders !?

In this case, users of Forex traders Contrarian Trading Strategies tend to open positions that are contrary to the current market bias, with the aim of gaining profit when market sentiments turn around. Therefore, the Trading Contrarian step includes Buy a currency when the value is weak, and Sell the currency when the value is strong.

Definition of Contrarian Trading Strategy
The core of Contrarian Trading is recognizing what is being done by the majority of market participants, then taking totally different actions. For example if other traders are carrying out a sell-off, the Contrarian Trading Strategy players will actually buy. Vice versa.

Many people mistakenly think the Contrarian Trading Strategy is definitely against the trend. In fact, Contrarian Trading is not necessarily against the trend (Counter Trend), because the focus lies in acting contrary to the majority of market participants (crowd). For example, if the majority of traders expect the EUR / USD price trend to reverse (reversal), then the Contrarian trader will continue to trade in the direction of the trend. On the other hand, when the majority of traders (crowd) predict the previous price trend will continue, then the Contrarian trader actually gets ready to face a reversal.

Therefore, the first step to becoming a Forex trader is the Contrarian Trading Strategy is to understand the market.



Why Contrarian Traders Can Profit By Fighting the Majority of Market Players?
In the eyes of Contrarian traders, there are several reasons why "against the majority of market participants" is actually profitable. The following include:


  • Market Maker (Bandar) will always take a position opposite the majority (crowd).
  • Data on Small Trader Profitability in a number of large brokers actually shows that traders who succeed in that profit are smaller than those who suffer losses. The data can be seen in the two tables below, as quoted from the survey results of Finance Magnates by ForexOp.



From the two tables, it can be seen clearly that from the first quarter of 2013 to the first quarter of 2016, in the top US brokers, the percentage of profitable traders was never more than 50 percent; not a majority at all. Conversely, traders who lose can actually reach 70 percent of all clients of a broker! Here, it is proven that "following the majority" is not a profitable choice.

  • Final reason: Because often have anticipated early, Contrarian traders can capture a good position when a price reversal occurs with an optimal Risk / Reward Ratio. Although, the strategy it does is not 100% certain to be true.

How to do a Contrarian Trading Strategy?
The Contrarian Trader will act in moments when the majority of market players are being carried away by a momentum of strong price movements in a direction, then choosing the opposite position. When the majority of market participants are prepared to push prices higher, this often results in overpriced, creating a gap to sell. Likewise vice versa, when everyone is doing an all-out selloff, that's precisely the opportunity to do a Buy; it's like shopping for clothes at a mall at a discount at the end of the year, not when a new model is launched.

There are many ways for Forex traders to identify the right moments for Contrarian trading, both from fundamental and technical perspectives.

How to do a Contrarian Trading Strategy?
The Contrarian Trader will act in moments when the majority of market players are being carried away by a momentum of strong price movements in a direction, then choosing the opposite position. When the majority of market participants are prepared to push prices higher, this often results in overpriced, creating a gap to sell. Likewise vice versa, when everyone is doing an all-out selloff, that's precisely the opportunity to do a Buy; it's like shopping for clothes at a mall at a discount at the end of the year, not when a new model is launched.

There are many ways for Forex traders to identify the right moments for Contrarian trading, both from fundamental and technical perspectives.

Contrarian Trading From a Fundamental Perspective

There are those who trade Contrarians with "against history" ahead of important news, such as for example the announcement of the Federal Reserve's interest rate policy. For example, the majority of the market assumes that the US dollar will strengthen after the announcement of this rate hike, because after the previous rate hike, the dollar has surged; then the Contrarian trader will instead assume the opposite, namely the Dollar will decline after the announcement this time.

Contrarian Trading From a Technical Perspective

Compared from a fundamental perspective, Contrarian trading is the most common Forex traders do using technical analysis. For example, by understanding Price Action (characteristic of price movements), recognizing Divergence, or other techniques that allow traders to detect reversals earlier.

Raed to Megaphone Pattern Trading Strategy, Your Profit Amplifier
Read to Trade With Triangle Patterns

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