Contrarian Position Building in Forex: A High-Risk Strategy

2023-06-05
Summary:

Understand the risks of adding positions against the forex trend. Carefully analyzing market trends to avoid making bad decisions for stable returns.

When speculating in foreign exchange, taking advantage of the situation can lead to stable profits, which is indeed true. But many people like to take positions that go against the market, so is it feasible to speculate in foreign exchange and increase positions that go against the market?

Is it feasible to increase positions against the trend during foreign exchange speculation?

There are two situations here. The first is when the trend of the exchange rate continues to rise or fall and exceeds a certain resistance level or support position, and as the opposite forces continue to strengthen, it is often easy to reverse. Therefore, many people will make judgments in the opposite direction at this time, but due to some technical errors or unclear logic, they enter the market prematurely and fall into trap, At this point, the trend is still moving in the original direction, and many people are starting to hold orders in the opposite direction and enter the market. As a result, they unknowingly made many orders and fell into huge losses. However, it is undeniable that some people have also earned some profits through this method.


The second scenario is when the trend of the exchange rate continues to move in one direction, and when there is a slight reversal at a certain position, investors believe that the trend is about to reverse. They immediately light up their positions and try to enter the market for a while, and then decide to increase their positions based on the situation. This is quite reasonable. Another scenario is when they eagerly start a new round of increase when they first make money on their orders, and then, at a loss, they realize that, This is just a small correction in the general trend, trapped in prison.


Firstly, we analyze the first scenario. In fact, from the perspective of probability, it is not advisable to increase positions against the trend. When investors enter the WTO, they may make profits, and also increase positions. But what we often see is that when there is little profit, we quickly take profits, while when there is a loss, we would rather be angry with the market, confront it, and persist until we are exposed. The consequences of doing so are often very serious. Perhaps if you make ten counter market orders, the profit of nine times is far less than the loss of one time. From this, it can be seen that adding positions against the trend is not advisable.


The second situation is clearly not advisable. From the perspective of fund management, we would rather make profits ten times than lose once. Therefore, the amount of funds lost each time is much greater than the amount of funds earned each time. It is obvious that this is not in line with conventional fund management strategies. Therefore, we should not blindly use the reverse market to make huge profits. Any fund is vulnerable in the foreign exchange market, as is well known, The risk of doing 0.1% for $10000 is the same as the risk of doing 1% for $100000, so don't rely on having too much capital to take on huge risks.


Countering the trend and increasing positions during foreign exchange speculation is a high-risk strategy that requires investors to have sufficient market experience and skills. In the foreign exchange market, exchange rate fluctuations are significant, and adding positions against the trend may lead to increased losses for investors. Therefore, when speculating in foreign exchange, it is necessary to combine multiple factors such as market trends, technical indicators, and fundamentals to make judgments in order to avoid blindly following the trend or operating in the opposite direction.


If investors believe that the market has reached a bottom, they can consider adding positions against the trend, but they need to pay attention to controlling their positions and risks. Investors can gradually increase their positions in batches to reduce risks. At the same time, it is also necessary to set stop loss points and promptly close positions to control losses. In short, adding positions against the trend requires careful operation to avoid blindly following the trend and making emotional decisions, in order to ensure investment safety and stable returns.


【 EBC Platform Risk Reminder and Disclaimer 】: There are risks in the market, and investment needs to be cautious. This article does not constitute investment advice.

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