Talking Points:
- Contrarian trading is already a probabilistic trading approach as it inherently fights prevailing trends
- Often, when trading against the trend, strong analysis is supplanted by complacency or conspiracy theory
- We discuss how contrarianism, complacency and conspiracy have shown up in the S&P 500, USDJPY and EURUSD
See how retail traders are positioning in the majors using the FXCM SSI readings on DailyFX's sentiment page.
Picking tops and bottoms is a statistically fraught trading approach, however markets do change direction. Trading with a contrarian approach - against the prevailing view or trend - therefore needs to be well thought out and executed. Trend of course is relative to individual perspective, but the concept holds across time frames with only a change in intensity. When our view on the market carries a strong backing of analysis via technicals, fundamantals and/or market conditions; an opportunity that passes the evaluation is theoretically a better one. However, when the call is made less on objective analysis and more on a general expectation or worse a rumor and questionable conspiracy; the success of the trade grows increasingly more suspect. We look at the difference between contrarianism and complacency/conspiracy as well as what it can do to our trading in today's Strategy Video.
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