Trading against the Herd.... Contrarian Strategy

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An interesting thread over on Forex Factory, a simple Contrarian idea that has merit…worth Demoing.

https://www.forexfactory.com/showthread.php?t=930316

The theory is based on the Speculative Sentiment (SSI) of the open positions currently on record with MYFXBook as of NY Close 12-07-2019. The strategy proposes that once the Short direction (or Long) sentiment is over 51% you open a position in the opposite (Contrarian) direction of the Herd…
ie: 51%+ are Short… you go Long… 51%+ are Long… you go Short…

I have displayed a small sample below to see if it’s worth a further look…

Data Source for this strategy is the MYFXBook Site, not Broker dependent so volume is independent…
Comprehensive Data is available on the page by moving the mouse over the chosen graph…

For those that want a serious look at this Strategy… you might want to check out FXSSI for a larger market snapshot of the SSI from multiple sources across the industry…

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EURUSD (Daily Chart Below - 200SMA ) 57% Short - 43% Long… Price has risen for 3 days… Confirm
_Note: Pepperstone (Aust) SSI displaying - 50% Short / 50% Long _

EURUSD_2019-07-12
EURUSD_2019-07-121653×679 58 KB

GBPUSD (Daily Chart Below - 200SMA) 27% Short - 73% Long… Price has risen for 3 days… Failed
Note: Pepperstone (Aust) SSI displaying - 22% Short / 77% Long

GBPUSD_2019-07-12
GBPUSD_2019-07-121653×679 57.3 KB

USDJPY (Daily Chart Below - 200SMA ) 16% Short - 84% Long… Price has fallen for 3 days… Confirm
Note: Pepperstone (Aust) SSI displaying - 13% Short / 87% Long

USDJPY_2019-07-12
USDJPY_2019-07-121653×679 38.4 KB

USDCAD (Daily Chart Below - 200SMA ) 6% Short - 94% Long… Price has fallen for 3 days… Confirm
Note: Pepperstone (Aust) SSI displaying - 15% Short / 85% Long

USDCAD_2019-07-12
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This sample was put together on a Saturday (13th)… and I would imagine a lot of positions are closed for the weekend so… I chose only 4 with the largest volumes… and 3 of the 4 trialed appear to support the strategy… It would be interesting to test a larger sample to really see if the theory holds up…

DailyFX also has data available to show SSI (Broker Independent) which can be seen here…

I suggest you at least have a read of the strategy concept over on Forex Factory.

5 Likes
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Nice post, thank you.

The logic is inescapable. If 80% of a brokers’ clients are losing money, doing the opposite will have the opposite effect.

I looked at sentiment indicators just recently but of course you only get a sample view - whatever data you can see from IG on dailyfx or whichever broker you trade with. But I soon realised that if I just referred to the 50EMA daily’s slope, the majority of private retail clients will take the opposite direction. So if its upwards they will be mostly holding short, if its downwards they will be mostly holding long.

I guess they’re holding out for reversal plays even before chart confirmation?

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It certainly has merit. This idea (& data) was actually introduced on here 3 years ago (somewhere around oct/nov 2016 if memory serves me right) & drip fed to the participants on the 16 candles thread by dancat, odds on & the other broker guys, to complement & enhance the directional momentum set ups & triggers the thread participants were adopting.

One or two of the participants who progressed onto trading funded accounts courtesy of those guys, also now have access to institutional broker biases which obviously carry much more weight than the lower volume retail stats.

This additional layer of information continues to prove invaluable to them when timing entries & exits in the types of set ups they use on a daily & weekly basis. The retail weightings certainly proved beneficial for them back then so i see no reason why they shouldn’t continue to do so.

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Hi @corpellan, Yes, I do remember seeing this described in the Edsal thread… Was just coming into FX at that time and really didn’t understand what was being discussed…

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I can fall prey to this more often than I’d like to admit!

I’m using the 50 + 20 Hull moving average that is colored based on the @Trendswithbenefits befuddled thread and some threads I’ve read from @tommor.

KC

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I watched “Prediction by the Numbers” on Netflix last night and kept thinking about this thread (which I’d seen earlier in the day yesterday).

https://www.netflix.com/za/title/81121186

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Kepp at it mate.

FWIW, it seems to me the slope of the 50EMA is just over 60% reliable as an indicator of price’s direction for the following week.

At this point, many traders are going to say 60% is not much more than random and add another indicator. I’ve done this myself. Anyone would think that two 60% reliable indicators would give better results than one. In reality, each additional indicator drives the resulting reliability down, not up.

(An edge of 60% is way way better than the casino’s margin in roulette.)

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That is really interesting!

I know this isn’t the place but I’ve been using adx as well and will post some screenshots in my journal would be very interested in your feedback and @Trendswithbenefits.

KC

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I’ve never used ADX. The thing that troubles me about my decision on this is that Connors & Raschke rate it pretty highly in one of the “Street Smarts” strategies. Those two are not dim.

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I don’t use the green and red plus minus crossover I simply use the indicator line.

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I’ve built a strategy based on sentiment from IG sentiment data on the major crosses that has proven to work well. Built my own indicator in excel using the data.

Keep it up!

:ok_hand:t2::ok_hand:t2:

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Gbpcad and gbpaud are great shorts

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Just using MYFXBook Data…

XAUUSD - London Open… 61% Short, 39% Long… Price jumps up 30 pips…

GBPJPY - London Open… 79% Long, 21% Short… Price jumps down 25 pips…

At the very least this may help play into the London Open game…

Just two that I have checked…

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Nice. My GBP/JPY short triggered a little earlier.
:slight_smile:

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Hey KC… Wilder’s ADX (or DMI) has only come to my attention since @dpaterso mentioned it in a post a while back… I knew of it, just hadn’t had a good look at it… I use the Vortex Indicator which is very similar, without the averaging line…

I just find the Vortex a little clearer for signal and a few of my bots confirm using the signal… As can be seen from the example below…

GER30_2019-07-16
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(Above GER30-DAX Daily - 14 Periods)

I have set the Periods to 14 for comparison only, to trade it I would use 6 - 9 which gives earlier entries and exits if managed properly…

But each to their own… it’s what you prefer, from what I have learned since I researched the ADX, it is as good if not better for Currencies than the VI…

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@Trendswithbenefits,

That’s really interesting, I’ll have to check it out. I’ve been using only the ADX average line. It seems to indicate amount of tremendous activity at Lows and peaks and sometimes minimal activity at Lows and peaks giving an indication of possible direction or what is happening in the market. I still have a hard time with a naked chart .

I’m away from home with the family, posting can be a challenge. When I get back I’ll put up some screenshots of what I’m using in my journal.

KC

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Correlating the data from Dennis’s SW Thread, Strong Weak Analysis wins again

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GBPCAD 8% Short - 92% Long… Price fell 84 pips … Confirm

GBPNZD 14% Short - 86% Long… Price fell 68 pips… Confirm

This strategy appears to be more powerful on the less popular lower volume pairs…

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Oddly enough the dude from No Nonsense says and shows exactly that i.e. on the major pairs the correlation with these reports is not as clear cut and easy to interpret as it is on the less popular crosses.

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Let’s try a Mixed Sample, and see if we can apply some probability to today’s London open

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(Above) USDCAD - SSI displaying - 12% Short / 88% Long | (Demo) | 40 pip Short TP / 20 pip SL

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(Above) EURCHF - SSI displaying - 16% Short / 84% Long | (Demo) | 40 pip Short TP / 20 pip SL

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(Above) EURJPY - SSI displaying - 16% Short / 84% Long | (Demo) | 40 pip Short TP / 20 pip SL

Hit their marks or ALL to be closed 1 hour after London open… result posted…

Results are in…

USDCAD went nowhere +1 pip | EURCHF -8 pips | EURJPY -12 pips = -19 pips across all three

Have to get clear data release information, some pairs are updating others appear frozen in time…

Will develop this theory offline… but at this stage… continue to throw a dart… and roll those dice…

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Interesting Finding! Proof of only minority win in the market.