How to Become an Excellent Reversal Trader

Anyone familiar with Gou Ge knows that he is a true left-side trader, meaning he goes against the trend and bets on market reversals.

Today I read an article that resonated with me, so I want to share how to become a reversal trader, or a contrarian trader.

(This article includes both Gou Ge’s personal experience and references to others’ writings.)

Munger once said he only teaches those who are almost ready, giving them a push at the edge of their enlightenment.

Similarly, Gou Ge can’t teach you everything in just one or two articles, and not everyone has the potential to become a reversal trader.

I’ll share some cases and briefly discuss.

Reversal traders may be born with certain traits, mainly a mindset—an anti-social tendency.

Daring to doubt everything, challenging authority.

Only you know your own situation best. If you’re completely unrelated to this type of person, you might as well stop reading here.

Many people know the 80/20 rule and also know that 95% of people in the crypto world are losing money.

So, the question is, where does the money go? What kind of force is it that puts money into those people’s pockets?

The investment returns of reversal traders often come from identifying mispricings. Most people get it wrong; if you see it right, you’ll make big money.

Gou Ge will share his own experience with A-shares briefly.

Gou Ge entered the A-share market around 2020. At that time, I invested in a stock called ST Shede (Shede Liquor). Due to issues with the major shareholder’s misappropriation of funds, the stock was ST (special treatment), and its price kept hitting the daily limit down to around 20. In 2021, through a change in ownership and hype around a high-end concept, the stock surged to nearly 260. I entered at 52 and closed at 252. I believe this was a very successful reversal trade.

Later, I invested in ST Huayu (Huayu Mining). It was also unfairly punished to around 5 yuan, but later it reached over 40. However, I didn’t hold it well because I was still inexperienced and didn’t secure good profits. Later, in the big A-share market, I didn’t make good profits either.

I mention these two examples to say that Shede at 20 yuan and Huayu Mining at 5 yuan were both mispricings by the market. If you understand this clearly, you can earn substantial returns.

Reversal trading often focuses not on win rate but on return on investment.

A strategy with a high win rate may yield very low or even guaranteed returns.

The same applies in the crypto world: catching intraday reversal points, positioning for medium- to long-term gains within limited opportunities.

Participate in long and short positions at key intraday levels, aim for 3%-5% profits within a week, bet on reversals after continuous rises, and buy the dip after many traders get liquidated.

Gou Ge always says, it’s against human nature—that’s the principle. Why is the current price much higher than when it was at 1800, yet fewer people are involved? It’s because retail liquidity is repeatedly being drained.

The peak isn’t something everyone can reach; it only appears after countless liquidations. The bottom also won’t be easily caught.

When Gou Ge first started investing, I heard a saying: buy when no one cares, sell when everyone is booming. I only recently began to understand this gradually.

A recent simple example—gold.

My original plan was to buy gold in batches when domestic prices were between 950-870 (about 4300-3900). Now it’s around 1000. Today someone asked me if they should go all-in on gold. I suddenly felt that the bottoming opportunity for gold might still be far away.