Stocks, Forex, and virtual currencies are all common stories about trading. Some beginners make contrarian entries when there is an uptrend or downtrend, but this is a fairly speculative and dangerous bet and is not recommended. Those who sell during the uptrend and buy during the downtrend need to be aware that they are gambling quite dangerously. The stronger the trend, the greater the unrealized loss and the loss of principal. So why is contrarian entry dangerous during a trend? In this article I’m writing.
Trends can go on forever
There is a reason why contrarian is dangerous while the trend is out, whether it is an uptrend or a downtrend. That’s because we don’t know how long the trend will last. There is a danger that you will go forever when there is a direction, especially when there is a lot of trading volume, you will go forever so that you do not even know when the trend will stop. It’s also not good mentally. It is very psychologically burdensome because it always has unrealized gains. You may not be able to make normal judgments, and you may not be able to cut losses. Contrary in the trend is always a tough battle and is not recommended in the first place.
Do not contradict while updating the highest and lowest prices
During the uptrend or downtrend, we will always update the highest or lowest price. In the meantime, at least it cannot be said that the entry timing is contrarian. In the meantime, it’s trending and will be updated forever. Many people will be driven by the urge to enter at the highest or lowest point, but it is quite difficult to pinpoint the highest and lowest prices. It is not so easy for experienced traders to pinpoint the highest and lowest prices. So let’s start by throwing away the illusion.
Don’t rush to enter
Depending on the personality of the person, the person who makes an entry even when the trend is strong may be in a hurry. Those who think that it may be reversed right now are advised to calm down and wait. Because the trend does not suddenly calm down and reverse. When reversing, there will be a phase in which buying and selling will be quarreled, and after a fierce offense and defense will occur, it will be reversed. In other words, the trend does not change suddenly after 1 minute.
Doesn’t reverse for a while when a strong trend is happening
Some trends continue to rise or fall over a period of days to a week. There are also trends that move over 1000 pips. At that time, it will not be reversed for a while. Because a strong trend has a lot of momentum, it will take a considerable amount of time for the trend to settle. Even if the trend starts to stop, it is necessary to wait for about half a day. Boiling water will not cool down until time passes. You don’t have to rush to enter. The turning point can be suppressed even after watching the price movement slowly.
Timing of contrarian entry
Then, at what timing should you enter when you want to buy from sell and sell from buy? There are two main timings for entry with contrarian.
- When there are many buys and sells in the same price range
- When the highest or lowest price can no longer be updated
When the trend ends, the battle between buying and selling begins at the same price range. This happens because the one-sided momentum begins to decline and the repulsive force becomes stronger. At this time, it is appropriate to enter with a reverse tension when you do not know whether it will go up or down. Furthermore, when this phenomenon occurs, the highest price or the lowest price will not be updated once. This is your chance to turn around. Please refer to the following article for the specific timing.