If you want to trade with low risk and the highest rewards then catching major trend changes can do just that and contrary trading in FX markets can yield stunning gains for those traders who master the art and here we will look at how to do it.

Markets move in reaction to the market fundamentals or news but at the end of the day, its traders who decide a price and there opinions all added together, give the price of any currency. Investors are not cold logical robots, they are humans and they respond to the emotions of greed and fear. In an up trend, they push prices to far and the same happens in a down trend and this is where the contrary trader looks to sell or buy.

All big up trends collapse when the market news is most bullish and all big down trends rally when the news is most bearish and the reason for this is simple:

Prices have been pushed to far by emotion and investors run the price to far ahead of the fundamentals and when this occurs and everyone is trading in the same direction, a small break in price causes a recoil the in the other direction. Traders then cover there longs and trigger stops which accelerates selling eventually, traders start to reverse their positions and take positions in the direction of the new trend and the reversal is complete.

So how do you spot important market tops and bottoms? There are several ways to do this and the tools below can all be used in a contrary, currency trading strategy.

The News

If a news story comes out which is bullish and prices fail to move higher in response to it then, you could be looking at a move the other way. Always remember, news is factored into the price straight away and if traders are anticipating a bullish report, they have already bought. When the news comes out prices either, don't move higher or even better for the contrary trader, they move the other way he can check his currency charts and look to execute a trading signal.

Net Traders Positions

This valuable free report, comes out once a week and is issued by the CFTC and is useful as it shows the breakdown of various groups on the CME futures exchange. The group to watch are the commercials; these are hedgers and their not influenced by greed and fear as they own the currency and are simply hedging to protect its value; if they start to heavily buy or sell a currency in the opposite direction to the trend, it means the price has moved to far ahead of the fundamentals and a trend change is likely. If the speculative position opposes the commercials and is at an extreme in favour of the exiting trend, then a great contrary trading opportunity is coming.

This is not a timing report but is an excellent currency trading tool to spot contrary trades.

% Bullish Market Vane

This simple report is a poll of who is bullish and who is bearish a market and the way to use if is if the poll shows over 80% of people are bullish, the currency is at an overbought extreme and if under 20% of people are bullish, it's at a bearish extreme.

This report dovetails nicely with the Net Traders Report to help you spot contrary trading opportunities and then you can move to your charts to time your trading signals

Market Timing

All short term price spikes are the result of human emotion and a look at any currency trading chart will show you this. In terms of spotting big trend changes watch for an existing strong bull trend to accelerate strongly and wait for the blow off high or low. There are numerous technical tools, you can use to help you time your trades and some of the best are listed below:

Bollinger Bands

All strong trends blow off on high volatility and this great indicator, gives you a visual snap shot of how volatile the market is.

The ADX Line

Show how strong a trend is and a move on the line above 40 which turns down, is a warning that a trend change is near.

The MACD

This is another great indicator, to show you how over bought the market is and can be used in a similar way to the ADX.

The RSI and Stochastic

These two momentum indicators, are great for timing your trading signals and if both are overbought or oversold and turn in the opposite direction, to the prevailing trend its time to take a trade. We use stochastic turn ups or turn downs, with bullish or bearish divergence, to get in the market and view it as the best indicator to time trades

Big Profits and Low Risk

If you are patient and wait for extreme set ups and use the above tools in your currency trading system, you can hit some great high reward low risk trades. Contrary trading is simply one of the most fun and lucrative ways of trading FX and while you may not trade regularly, the profits from this form of trading are huge.

You make bigger currency trading profits, with less risk and spend less time on your trading which is what all FX traders want to achieve. So put together a contrary trading, currency trading strategy and get on the road to a great second income in 30 minutes or less per day.