Contrarian Trading: Step by Step Guide

Contrarian trading is a great way to accumulate wealth. This method allows you to save a lot of money from the fear and greed of others.

Famous contrarian traders

There are many well-known contrarian traders that you have most likely heard of.

Warren Buffet is one of the most famous traders and believes that the best time to enter is when a stock has been shot down.

Other major contrarian investors like Keith Gill known for his r/wallstreetbets posts and YouTube videos have turned a $53,000 bet on GameStop into nearly $50 million dollars.

Also George Soros, who is known for his short circuit of the yen and the pound. This earned him a nice $2 billion in trade profits!

Other important people such as Baron Rothschild who was a British nobleman, a member of the Rothschild banking family, who said “the time to buy is when there is blood in the streets”.

What is contrarian investing?

Contrarian trading is simple. Go against market trends.

This means that you sell when others buy and you buy when others sell. Many famous traders have made a living by trading like this. Warren Buffet, for example, is one of the most well-known traders to use this method.

Contrarian traders think slightly differently than others. They do not trade on the basis of fear and greed as many traders who hope to get rich quickly do.

So the opposite of a contrarian would be someone who goes with the flow and trades like everyone else.

Explanation of the contrarian theory

In short, this refers to if everyone believes that a sure thing will take place, then it will not happen.

For example, most traders who trade a specific stock and only believe that it will rise, so a contrarian trader will go against them in the hope that they will cash out others fear when the stock starts to level out and make a downturn.

So now, since we know the basics of a contrarian trader, how can we become one and profit from the fear and greed of traders?


This strategy is great with Forex, Stocks, Cryptocurrency or Futures.

What indicators are best with contrarian trading strategy?

There are many significant indicators that you can use, such as MACD, RSI or moving averages.

For simplicity, we will not actually use any indicators with this strategy.

So you can use those contrarian indicators, but they are not necessary if you follow this strategy.

Trading tools needed

You need a drawing tool.

The trend line.

A trend line can be used on any of the most popular trading platforms out there.

It is a universal tool and if you need to know more about this tool, you can always read this article which shows you a great way to trade with trend lines.

Which time frame is best?

In this strategy, we will use a daily time interval. You can use other time frames, of course, but we strongly recommend using a daily for this contrarian strategy.

Rules for contrarian trading strategy

Now, since we have examined the basics of a contrarian trader, let’s go beyond the rules of strategy!

Rule #1: Go to the daily time frame on a stock that has been on a downward trend for at least three consecutive months.

In this example, we will use a stock. The ticker for this example will be $PYPL.

As we said before, you can use this method with any market to apply these rules to whatever you are trading.

We want at least three months because this means that many traders are starting to panic.

Panic is what you want with this strategy.

A great way to find them would be to look for 52-week lows.

For stocks, you can use this tool on yahoo finance

For Forex, you can use Barchart’s 52-week low tool here

For cryptocurrency, you can use tradingviews crypto screener and filter “52 weeks low”

Rule #2: Draw your own trend line and be patient

Drawing a trend line can be incredibly simple.

But to make sure you know exactly how to do it, check out the trend line article here so you can do it effectively.

The trend line should look like this.

In this case, it has already broken, which is great news for us because we can now go to rule #3

Rule #3 Price Breaks trendline

This rule is simple.

Wait for a daily candle to break your trend line.

To constitute a break, the price must close the daily candle above the trend line.

Rule #4 Wait for lateral movement

Remember, there has been a lot of fear in recent months, so many traders are looking at a break in the trend line, hoping that it will rise again.

This is where a smart contrarian investor resists because contrarian investors don’t come in when everyone else does.

Most will return when a trend line breaks, so we have to wait for a side move and enter when others are no longer interested.

When a pair, stock, or cryptocurrency goes sideways, traders tend not to pay attention to it anymore.

This is when the contrarian trader strikes!

Rule #5 Enter when the side move breaks!

You can do this by drawing an additional trend line or just looking at the price action, as it will be easy to spot.

Rule #6 Stop loss positioning and when to take profit

Traders should always consider using a stop loss.

The stop-loss positioning should be a few dollars below the lowest price.

As you can see in this example, the stop-loss is set to $176 since the minimum was $179.15

For a take-profit goal, we recommend that you follow your stop-loss. If you’re not sure how trailing stop losses work, you can read this ultimate guide to stopping losses to help you understand it better.

Move your stop-loss to break even once the price rises 10% from your entry.

Since this is still an active example at the time of writing this article, if you look at the image above, if the price goes up by 10% you will move your stop where you entered. This takes ALL the risk out of your position and you can enjoy watching it move! This also helps you in case the price starts to come back because, remember, this is a stock that has been knocked down. We don’t want to keep it forever, we’re just trying to find the fund and get in before all the other investors.

There are many options, but we recommend that you keep this position in the long term at least at its all-time high.

Enjoy watching everyone else come in after you and drive this stock up to 50%, 100% and more.

The goal here is to get to a position where you’ll be able to hold it as it continues its way to its previous all-time high.

In our example above, trading hasn’t actually activated yet, so this is a great real-world example of what a configuration looks like before it activates (if it does)

Exceptions to the rules

There are always exceptions to the rules.

What if a trend line breaks and then the stock continues to fall big touching all the historical lows as it falls?

Easy, we do not enter and wait for another break of the trend line + we move sideways on that stock.

A side move is not one or two candles a day. A side move is a good 5+ candles of lateral-only movement.

So, if you see a daily candle of +10%, don’t get excited like many traders would. Wait for it to stabilize and traders will forget about it if it moves sideways. That’s when you come in!

We will not take the risk of entering when everyone else thinks it will rise only to fall back. Many call it a “dead cat bounce” which is a completely separate topic.

Contrarian Examples

This is an example about the AUDCAD pair. So this Contrarian Forex strategy works great as you can see

A good example of contrarian cryptocurrency strategy would be here.

So, if you are looking for the best Contrarian trading strategy for cryptocurrency, this is a great method to try! It’s easy to learn, and contrarian psychology is easy to understand once you start using it daily.

Contrarian Options Trading

You can use this strategy for options trading! Just follow the same rules and instead of getting sharing you get call or put options at the same level.

Contrarian Forex Trading

Using it to trade Forex is a great way to make steady profits if you keep your risk low. With this swing trading contrarian strategy, you will discover how easy it is to go against the masses. After all, that’s what the “big guys” do, right?

Sales rules

Before concluding, you can use the exact rules above only in the opposite direction for a sell trade. Above, there are all the examples of Buying because that’s what we prefer, but selling can also work just to make sure you follow the rules in just the opposite direction.

Contrarian Trading Strategy Video

We have made for you a short video about this strategy that you can see below!


Buying stocks, currency pairs or crypto coins when they continue to reach lows is always risky. This is not really a contrarian day trading strategy, but you could try at lower time intervals, we only prefer higher time frames. Remember to risk only what you can afford to lose. Do not risk the entire account on this location, as you may burn yourself quickly. If you want to learn the best risk management strategy, you can always check out our article on this here. Follow the rules and stick to your guns. Don’t get caught up in emotional trading, as this is one of the worst things traders can do. So, if you are looking for the best contrarian trading strategy, the best contrarian investment strategy and how you can become a contrarian trading master, follow the above strategy!

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