Some days most forex pairs are going in one particular direction and it doesn’t make sense to go against the herd.
However, if you are a fan of picking tops or bottoms and if you think that these strong trends are already exhausted, You don’t have to be afraid to take the opposite approach for your forex trading.
When all the charts point in one direction and the current market sentiment is supported by the news, it is easy to understand why many traders are reluctant to move against the herd.
But as investment guru Warren Buffett said, “We should also be afraid when others are greedy and greedy while others are afraid.”
You see, just because the majority of traders have a certain trading bias, it doesn’t necessarily mean that they are right.
Sometimes, strong momentum only reflects the entry of trading enthusiasts who go with the flow without knowing what is driving the price action.
This is why blindly following the herd can lead to grazing bias – one of the five common trading mistakes traders make.
Ask anyone who has tried to trade against the herd successfully and they will tell you that they can get scared when your analysis leads you to an unpopular bias.
But sometimes, it pays to go against the herd and be the odd one out — to be the contrarian.
contrary trading It is a forex strategy that favors going against the current market bias in anticipation of a shift in market sentiment. It involves buying a currency when it is weak and selling it when it is strong.
Contrasting traders try to take advantage of moments when the markets are swept away by strong momentum.
When everyone else is ready and willing to raise prices, it can sometimes lead to overvalued assets. Likewise, when everyone is firmly intent on selling an asset, opportunities to buy into a good deal emerge.
One of the main benefits of contrarian trading is that it allows you to get good prices and catch reversals as soon as they start.
In turn, this often leads to very attractive risk reward ratios, giving you more value for your money.
However, opponents trade against the trend, and this does not always work in their favour. As the saying goes, “the trend is your friend,” but he can be a mean son of a gun when you fight him back.
When the trend is particularly strong, it can get out of the right direction, throwing out potential reversal points and washing out those who go against the flow.
In no way am I saying you should reverse direction just for the sake of it.
What I’m just saying is that if, after doing your thorough fundamental and technical analysis, you have ample reason to believe that the market is about to turn around, don’t be afraid to go against the herd and take the opposite stance.
Remember, you don’t always have to go with the flow; A lot of profitable trading opportunities arise from staying away from the crowds.
