The Best Indicators For The Contrarian Traders
Contrarian traders trade against the market majority. They look to take trades in the opposite direction of what the market is doing. While this method is risky, it has the potential to make one earn huge profits in the trade. This is because the contrarian traders are able to spot the market reversal soon.
The best way to place trades as a contrarian trader is to look at the higher time frame resistance and support zones. It is important to know that these levels may not work out at times and thus one should place a stop loss and honor it. In addition to the levels, it is also beneficial to make use of the technical indicators to increase the probability of the trades working out.
Indicators for contrarian traders
Thecontrarianindicators let the trader judge whether it is the right time to take the trading position. The two popular indicators that the traders look at are the trend linebreak and the CCI or the commodity channel index.
- Trendline break – Here the trader waits for a break of the trend line that was holding strong until now. This is an indication that the trend that was strong has run out and it is now time for a reversal. When there is a break of the trendline then this lets the contrarian traders place a new position in the market. The trend linebreak indicates the end of the earlier trend and the start of a new trend in the opposite direction. The trader will hold on to the trade until he sees a reversal in the opposite direction.
- CCI or the commodity channel index- TheCCIis used to judge the extent of bullishness or bearishness in the market. The indicator runs on a scale that ranges between +100 to 0 to -100. The bullish sentiment is strong when the indicator falls below the -100 line and the turns above the indicator. When this happens, the contrarian traders take a long position on the asset. Once the indicator rises above the +100 line and then turn down the bearish sentiment starts to build up. This is when the contrarian traders will go short on that particular asset.
Whichindictorshould you trade with?
If you plan to be a contrarian trader then you need to decide on an indicator to place the contrarian trades. You may also want to use both the methods together. For example, you can take a buy position in the market when the CCI is upwards from the -100 and at the same time you spot that there’s a break of the bearish trend line.
Also, read the news to watch for any impact on the market trend.