In this strategy, we will use a Daily Time Frame. You can use other time frames, of course, but we highly recommend you use a daily for this contrarian strategy. Now since we went over the basics of a contrarian trader, lets go over the rules of the strategy! As we said earlier, you can use this method with any market to apply these rules to whatever you are trading. For Stocks, you could use this tool on yahoo finance.

For Forex, you can use Barchart's week low tool here. For Cryptocurrency, you can use Tradingviews crypto screener and filter "52 week low". But to make sure you know exactly how to do this, check out the trendline article here so you can do this effectively.

In this case, it has already broken, which is excellent news for us because now we can go to rule 3. Remember, there has been a lot of fear over the last several months, so many traders are looking at a trendline break, hoping it will go back up. This is where an intelligent contrarian investor holds out because contrarian investors don't get in when everyone else does.

Most will get back in when a trendline breaks so we need to wait for a sideways move and get in when others are not interested anymore. When a pair, a stock, or a crypto goes sideways, traders tend not to pay attention to it anymore. You can do this by either drawing an additional trendline or just watching price action, as it will be easy to spot. For a take-profit target, we recommend you trail your stop-loss. If you are not sure of how trailing stop losses work you can read this ultimate guide to stop losses to help you better understand this.

This takes ALL of the risk off of your position and you can enjoy watching it move! This also helps you in case price does start to move back against because, remember, this is a stock that has been beaten down. We dont want to be holding this forever, we simply are trying to find the bottom and getting in before all the other investors do. There are many options, but we recommend you hold this position long-term to at least its all-time high.

The goal here is to get in a position where you will be able to hold it as it continues its way back up to its previous all-time high.

In our example above, the trade actually has not triggered yet so this is a great real world example of what a setup looks like before it triggers if it does. What happens if a trendline breaks and then the stock continues to fall big time hitting all time lows as it goes down? A sideways move is not one or two daily candles. Wait for it to settle down and traders will forget about it if its moving sideways.

That's when you get in! We are not going to take on that risk of getting in when everyone else thinks its going to go up only to fall right back down. Many call that a "dead cat bounce" which is a completely separate topic. This is an example on the AUDCAD pair.

So this Contrarian Forex Strategy works great as you can see. So if you are looking for the best Contrarian trading strategy for cryptocurrency this is a great method to try! It is easy to learn and contrarian psychology is easy to understand once you start using this on a daily basis.

You can use this strategy for options trading! Just follow the same rules and instead of getting share you get call or put options at the same level. Using this to trade Forex is a great way make consistent profits if you keep your risk down. With this contrarian swing trading strategy, you will find out just how easy it is to go against the masses. After all, that is what the "big boys" do right? Before we conclude, you can use the exact rules above just in the opposite direction for a sell trade.

Above, are all Buy trade examples because that is what we prefer, but selling can also work just make sure to follow the rules just in the opposite direction.

Buying a stocks, a currency pairs, or crypto coins when they are continuing to hit lows is always risky. This is not really a contrarian day trading strategy, but you could try on lower time frames, we just prefer higher time frames. Remember to only risk what you can afford to lose. Do not risk your entire account on this position, as you could get burned quickly. If you want to learn the best risk management strategy you can always checkout our article on that here. Follow the rules and stick to your guns.

In other words, we need to detect when the crowd, consciously or subconsciously, is expecting that history will repeat itself. Figures 2 and 3 shows two similar technical patterns on the EURUSD chart. In both cases the pair initially moves up a distance of about pips from a significant minimum circled in red. These moves were initially slow with low volatility. Then in both cases, after facing some resistance, the pair moved up sharply about pips.

Figure 4 shows the hour volatility chart during the same period. As can be seen two distinct peaks occur at these two events. These are circled. The contrarian view: Taking the contrarian view I now assume that the crowd will expect history to repeat itself.

Namely, they will assume that the next move of the second pattern from point D1 on Figure 3 will be down pips to 1. As EURUSD initially turns bearish, more people will start to believe that it will reach to 1. The contrarian trading idea, based on the notion that history will not repeat itself is as follows. I assume that the wave starting from 1. Instead the major move will be in the opposite direction.

As such I take the position:. I set the stop loss at 1. Figure 3 illustrates the above trade. As can be seen, this contrarian prediction does indeed play out. History does not repeat itself. The market rises strongly again after an initial bearish run. This happens after meeting strong support around 1. This example shows another case of similarity.

With my contrarian perspective, I first consider what expectations the first pattern created for the second pattern. For the first pattern, we have:. Just before the announcement of news, which is about hours after the start of the second pattern, the contrarian will expect:. With these parameters, the take profit is at least pips greater than the stop loss.

That is, pips up from the maximum of the range 1. Again, if the price falls to 1. After a fake dip , the market rebounds and rallies strongly to the upside. These kinds of moves often trap large swathes of market participants into losing positions. What you should try to do is to have an edge on the crowd. This can tilt the odds in your favor by enough of a margin to be profitable. If the similarity is simple and seen by many participants it will quickly attract large volumes from unsophisticated traders.

This will create materially significant opposite positions for market makers. In this case it will be in their interest that the similarity stops so that they can reduce their risk. If the similarity is complex, it will take much longer to be noticed by enough participants to attract large volumes and become a materially important factor in the market.

Due to the likelihood of mistakes, as a contrarian you will need to generate many trading ideas. This should be across several diversified currency pairs or other instruments. This will allow you to allocate a small risk to each idea and thus generate less volatile returns. COURSE Carry Trading Complete course Carry trading has the potential to generate cash flow over the long term. This ebook explains step by step how to create your own carry trading strategy.

It explains the basics to advanced concepts such as hedging and arbitrage. hello and thank you for your great job but let me go in depth more… i am an alpari customer and i am testing their retail trader market sentiment i am always trade against retail traders maximum volume. so i start to sell gbpusd but unfortunately this method sometimes work and sometimes market goes with their majority positions.

Thank you! The tool from Alpari US you mentioned gives the actual positions, but unfortunately it does not give any information about expectations. In my opinion, identifying the levels of concentration of current take profit and stop loss orders of retail traders can be helpful to understand expectations.

I would suggest to look at following resources from larger brokers, some of which give information not only about positions, but also about limit orders of traders. Of course these resources will not give you the complete picture since many traders do not put orders or just put protective orders far from the market. However, I think they can improve results, especially in extreme market conditions.

This explains why we saw such a big gap dawn for EURCHF. When there is a gap over the stop loss orders, they are executed by market price and not order price. This means bigger losses for the crowd and huge profits for market makers. In addition to above mentioned resources, I would also suggest to consider following to other sources of market sentiment, such as analyst research and trading signal providers. Start here Strategies Technical Learning Downloads. Cart Login Join. Home Strategies Contrarian.

Contrarian patterns in FX trading © forexop Contrarian trading is a way to profit from crowd behavior. Most successful contrarians know that this requires understanding and then anticipating the dynamics between market participants.

The ideas that I am sharing in this post helped me to generate consistent profits over several years of intraday FX trading and helped me become one of the top 14 Trade Leaders in Currensee.

Currensee was the forerunner to newer social trading platforms like ZuluTrade and eToro. It was once one of the largest FX trading networks in the US, with thousands of live trading accounts connected to it. Contrarian investment and trading is about doing things differently. In essence it means identifying what the majority of market players are doing, and then doing the opposite. For example if everyone is buying an asset the contrarian is selling and vice versa. A common misconception is that contrarian trading is about trading against the trend.

Contrarian trading is not about trading against the direction of prices. Rather it is about trading against the majority of market participants who are behaving as a crowd. For example, if the majority expects that a trend will reverse, the contrarian trader will continue to trade in the direction of the trend.

On the other hand, when the majority expects that the trend will continue, the contrarian will start positioning for a trend reversal. The first step towards being a contrarian is to understand the market participants in terms of their performance and sophistication. Figure 1 below shows how a contrarian would typically classify market participants. FX trading, at least in the very short-term think intraday traders is a zero sum game. Within this space the general consensus is that market makers are consistently making money and the crowd is consistently losing.

com Source: Finance Magnates. For example, one subgroup of the crowd is the community of retail traders. The corresponding subgroup of market makers is those financial institutions and brokers that take the opposite side to the positions of retail traders. Table 1 and 2 shows one recent US study in which retail traders as a whole are consistently losing. There are several reasons that contribute to the poor performance of this subgroup.

These can be summarized as:. Retail traders are probably the least successful subgroup of the crowd. However the above factors may also impact other subgroups that make up the crowd. For example, these can be non-financial companies, as well as small to medium asset managers.

Overall, the less informed market participants are more likely to face losses in the market. And those with less sophisticated risk management system are more likely to behave emotionally when met with uncertainties. This results in mistakes. Of course not all retail traders will lose.

Many individuals are highly successful. Rather, I am classifying the aggregate performance of the entire group. We also have to remember that for many participants, FX simply plays a functional role in meeting foreign exchange needs. For these players, profit is not even an issue. To summarize, within the various subgroups of the FX market there are ample opportunities for the contrarian to act on bias and inefficiency.

The next section shows how I do this this in practice. In order to construct a contrarian strategy, the first task will be to look at the main assumptions that lead to negative returns and then adopt the opposite position. In reality, FX markets are always in a state of flux and nothing is permanent besides change. While some events may appear extremely similar, careful analysis shows that history never repeats itself in exactly the same way.

In other words, we need to detect when the crowd, consciously or subconsciously, is expecting that history will repeat itself. Figures 2 and 3 shows two similar technical patterns on the EURUSD chart. In both cases the pair initially moves up a distance of about pips from a significant minimum circled in red.

These moves were initially slow with low volatility. Then in both cases, after facing some resistance, the pair moved up sharply about pips. Figure 4 shows the hour volatility chart during the same period. As can be seen two distinct peaks occur at these two events.

These are circled. The contrarian view: Taking the contrarian view I now assume that the crowd will expect history to repeat itself. Namely, they will assume that the next move of the second pattern from point D1 on Figure 3 will be down pips to 1.

As EURUSD initially turns bearish, more people will start to believe that it will reach to 1. The contrarian trading idea, based on the notion that history will not repeat itself is as follows.

I assume that the wave starting from 1. Instead the major move will be in the opposite direction. As such I take the position:. I set the stop loss at 1. Figure 3 illustrates the above trade. As can be seen, this contrarian prediction does indeed play out. History does not repeat itself. The market rises strongly again after an initial bearish run. This happens after meeting strong support around 1. This example shows another case of similarity. With my contrarian perspective, I first consider what expectations the first pattern created for the second pattern.

For the first pattern, we have:. Just before the announcement of news, which is about hours after the start of the second pattern, the contrarian will expect:. With these parameters, the take profit is at least pips greater than the stop loss. That is, pips up from the maximum of the range 1. Again, if the price falls to 1. After a fake dip , the market rebounds and rallies strongly to the upside. These kinds of moves often trap large swathes of market participants into losing positions.

What you should try to do is to have an edge on the crowd. This can tilt the odds in your favor by enough of a margin to be profitable. If the similarity is simple and seen by many participants it will quickly attract large volumes from unsophisticated traders.

This will create materially significant opposite positions for market makers. In this case it will be in their interest that the similarity stops so that they can reduce their risk.

If the similarity is complex, it will take much longer to be noticed by enough participants to attract large volumes and become a materially important factor in the market. Due to the likelihood of mistakes, as a contrarian you will need to generate many trading ideas. This should be across several diversified currency pairs or other instruments.

This will allow you to allocate a small risk to each idea and thus generate less volatile returns. COURSE Carry Trading Complete course Carry trading has the potential to generate cash flow over the long term.

This ebook explains step by step how to create your own carry trading strategy. It explains the basics to advanced concepts such as hedging and arbitrage. hello and thank you for your great job but let me go in depth more… i am an alpari customer and i am testing their retail trader market sentiment i am always trade against retail traders maximum volume.

so i start to sell gbpusd but unfortunately this method sometimes work and sometimes market goes with their majority positions.

Thank you! The tool from Alpari US you mentioned gives the actual positions, but unfortunately it does not give any information about expectations. In my opinion, identifying the levels of concentration of current take profit and stop loss orders of retail traders can be helpful to understand expectations. I would suggest to look at following resources from larger brokers, some of which give information not only about positions, but also about limit orders of traders.

Of course these resources will not give you the complete picture since many traders do not put orders or just put protective orders far from the market. However, I think they can improve results, especially in extreme market conditions.

This explains why we saw such a big gap dawn for EURCHF. When there is a gap over the stop loss orders, they are executed by market price and not order price. This means bigger losses for the crowd and huge profits for market makers. In addition to above mentioned resources, I would also suggest to consider following to other sources of market sentiment, such as analyst research and trading signal providers.

Start here Strategies Technical Learning Downloads. Cart Login Join. Home Strategies Contrarian. Contrarian patterns in FX trading © forexop. Figure 1: FX market participants through the eyes of the contrarian trader © forexop. Copyright © forexop.

With this contrarian swing trading strategy, you will find out just how easy it is to go against the masses. In addition to above mentioned resources, I would also suggest to consider following to other sources of market sentiment, such as analyst research and trading signal providers. The next section shows how I do this this in practice. Most will get back in when a trendline breaks so we need to wait for a sideways move and get in when others are not interested anymore. Download the short printable PDF version summarizing the key points of this lesson…. Copyright © forexop.

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