What is the Contrarian Indicator in Trading Crypto and Forex?
In a social setting, people revere contrarians.
Ordinarily, these are folks who swam against the current and didn't cave in to pressure by constantly asking hard questions.
If their ‘contrarian’ view triumphs, they become visionaries.
The same line of thought applies in crypto and trading in general.
Both fundamental and technical analysts can be a contrarian indicator. However, fundamental analysts—or the news trackers—can easily pick out when the market is biased on a particular currency or digital asset.
When a trader decides to be a contrarian, they set up market positions that oppose the mainstream sentiment. Often, this strategy works best when the market is saturated, either on the upside or downside.
At this time, it won't make sense to new traders who adhere to the maxim that the trend is their best friend.
Let's illustrate this:
In mid-May 2021, many crypto and Bitcoin hard-liners thought BTC/USD was primed for another wave higher towards $70k and eventually $100k.
Then, when BTC prices were hovering at around $60k, contrarians would be busy unloading their longs and opting for short positions.
It was easy to see why: Many traders were long and irrational exuberance had set in.
What followed was a market crash that saw BTC crater to $30k in hours.
Contrarian indicators and traders, however, need to apply this style with tact. Their success ratio is relatively low—since they can be wrong most of the time.