Contrarian Forex Trading Strategy, Is it Works?
If you’ve been involved in the forex markets for a reasonable amount of time, you will know that the general advice is to always trade in the same direction as the overall trend. However some traders like to create contrarian trading strategies against the trend so they can generate the really big profits, but is this really a good idea?
Well in my own experience I’ve tried on numerous occasions to create contrarian trading strategies and I’ve always failed to come up with a consistently profitable trading method. The major problem you have is that you are always looking for tops and bottoms, but in most cases these points on the chart only become obvious after the event.
When you’re trading the right hand edge of the chart in real-time it’s extremely difficult to call a top or a bottom of a particular price move. If you do manage it you can bank some huge profits, particularly on the longer time frames, but as I say it’s extremely difficult to do.
You can use various different technical indicators to help you identify these highs and lows but they won’t necessarily help you. While various different oscillating indicators such as RSI and stochastics can highlight overbought and oversold areas and create some reasonable trading opportunities, there are times when these indicators turn out to be completely useless because the price will just keep on moving further and further into overbought / oversold territory.
This is why I always believe it’s best to create a trading strategy that trades in the same direction as the overall trend. Of course you may not make as much profit from each winning trade, but your success rate will be a lot higher, and it will certainly be a lot less stressful.
Furthermore it’s simply a lot easier to trade the middle section of a trend than it is to try and call the end of a particular price move and the start of a new trend. Successful forex trading is all about probabilities so in order to make long-term profits you really do need the odds to be in your favour, and sadly this isn’t the case when you are trading against the direction of the current trend.
So the point I want to get across is that although there are inevitably some traders out there who are successful in trading against the trend, it is not a strategy that I would recommend myself. I personally only ever trade in the direction of the long-term trend, whichever strategy I employ, and I’ve found it to be so much easier because it’s simply more profitable to follow the crowd than it is to take an opposing view in the opposite direction.