Trading the bounce from a recent price reversal that is hitting major support, will more times than not be more reliable than trading the break-outs to new highs. Contrarian trading the bounce tends to create more trades you are already in as the new break-out occurs at the other end; you are then selling as others are looking to buy the new breakout. No point trying to plow a new field when we can follow the lines that we just saw set, the task is so much easier when we are retracing moves that recently happened, the resistance is lighter.
Look for a move back to a main support area (previous session low, main pivot point area, daily Simple Moving Average etc), wait for the market to show that the price has held, look for confirmation from other cross pairs that are moving in the same direction as your proposed trade, and get in before the Perfect Signal has formed. The art of contrarian trading is to not over-leverage the positions, and look to be buying the overall direction of the daily chart trend, after a pull-back rather than as a new break-out.
This leads on to looking for Perfect Signals; how many trades set up that when the Perfect Signal comes, (everything aligns, trade gets taken), they suddenly reverse the moment that you get in? By waiting for too much confirmation or not having a plan in place that allows for disciplined Contrarian Trading a Perfect Signal to enter will most times fail. It has become Perfect by having already moved from a Contrarian bounce off a major price point.
Contrarian Trading; taking bounces off Trend-lines, Pivot Point lines, SMA's, whatever they are that can be justified at a major Price Point, but it is harder to do, needs more discipline, and has far more fear attached to it for new traders than just waiting for the Perfect Signal. However, if it is properly planned and taught it is the easiest way to trade because it is following the overall trend. The 4 Hour and 60 Minute charts are key, Pivot Point lines help dramatically.
The Perfect Signal then becomes to a Contrarian Trader their signal to exit, along with the other Pro traders. Hence the reasons for the reversal just after those looking for the perfect signal have jumped in.
It is Trading with the overall Trend, but only after a pull-back to a pre-determined price point. Trend, discipline, plan, and open mind; Contrarian Trading.
Written by TheLFB Trade Team, © 2007-2008 LFB Services, LLC. All rights reserved. http://www.TheLFB-Forex.com