The Contrarian Traders In The Futures Market
The market is comprised of two types of traders. One that takes a side with what the majority of traders are doing. The other set of traders are those who look to trade against the market. They are known as the contrarian trader.
The contrarian traders have some advantages but these do have their share of risks. It is thus important to understand what the pros and cons of this strategy of trading are and then trade accordingly based on individual risk profile.
You may even want to read the news to take anew contrarian trade strategy.
Thecontrariantraders need to analyze where the majority of market participants are placing their trades. The price will rise when the market majority is buying. The price falls when the majority of traders are selling. The contrarian traders will wait for the time when the majority will start to wean out. When this happens the contrarian traders place their trades but in the reverse direction of what the majority traders are doing.
The basic advantage of doing contrarian trading is that the trader is able to buy low and sell high if he is able to spot the right reversal levels. In fact, some great profits can be made when the contrarian trades are placed successfully. However, there is a risk involved as well.
When the majority in the market is buying you are looking to sell. And when the majority in the market is selling then you are looking to buy. You are thus trying to fight the broad momentum in the market which is something that needs lots of practice to master. When doing a contrarian trading the chances of getting stopped out is high.
How to place a contrarian trade
Here is the answer to how you can be a contrarian trader and make profits. The market does not move in a single direction. It has to reverse at some point in time. As a contrarian trader, you need to understand and find out where the market is likely to reverse. If you are able to spot this level successfully then there is a huge profit to be made.
To be able to spot the level first look at the higher time frame resistance levels in the case of a bullish market or the higher time frame support level in the case of a bearish market. These are the likely levels from where the price may turn.
You can place your contrarian trades at these levels. It is, however, important to know that these levels may not work out at times and thus you should always have a stop loss in place.