Oil Trading Strategies: Contrarian Trading
In simple terms, the term ‘trading’ means that one person is buying an asset and another is selling it. So with each transaction, one person plays against the current trends dominating the market. Some of us are adoptive of trading styles that fall into the contrarian category when oil or another commodity is in an uptrend. This means they tend to think that there is going to be a downward move in near future, even though most of the trend direction is currently pointed in the other direction.
Conversely, when oil prices are in a downward trend these traders think that crude is going to go up in the near future. These types of trading stances require an efficient commodity trading platform, as they are sometimes seen during periods of increased volatility.
Contrarian traders who can control their trading emotions, remain aware of the trends, and wait for price confirmation before taking any action are the ones that will be able to consistently make money in the commodities market. Here, we will look at some trading tips for those that are looking to employ contrarian trading strategies.
- Separate opinions and actions: As a contrarian, you must understand and differentiate the dissimilarity between views and actions. If the market is falling, and you think that it will rise eventually, then you don’t need to take action right away. Views can be differentiated from the current scenario – it will help you make money from the market by trading on the market, then to believing your views.
Strong views about the commodities market can have an adverse impact on the profitability and hence it is important to have a solid trading plan before starting actual trading. A good plan will help you align your goals and will separate you from your strong beliefs/views. For example, if you believe a rising USD should fall eventually, and you take a position accordingly, then the USD can continue to rise beyond your appetite for risk, resulting in some serious trading losses.
- The trend is your friend: Always keep in mind that “trend is your friend” and following a trend will make you profit more often, then believing your contrarian opinions. Trading with the trend will allow capitalizing on the market moves, instead of waiting for your opinion to be true.
- Watch out for prices: In an upward trending market, the trader should trade with the trend, but shouldn’t get carried away and act according to his (her) views as soon as price-action in the contract suggest a reversal.
A contrarian with strong contrarian views can make the money in the currency market, if (S)he can control his(her) views and trade the trends. And act on the first sign or confirmation of price reversal according to his (her) views.