Contrarian Usage to Identify Areas of Value

Hey all,

I thought I’d stick this up here in case its of interest to anyone. It’s just an idea to explore and not a complete system. I’m sure there are many indicators you could apply this contrarian usage to, I’ve just been experimenting with this one.

Here’s the theory: most of the time, when an indictor tells you to keep out of the market, that is when institutions are often getting into the market. The market looks and feels crap, the indicator says it’s crap, but that’s actually the time to pay attention.

Using an indicator in reverse of its intended usage can often help to highlight areas where big players might be getting active. In the picture below, the areas in ‘gold’ potentially represent areas in the market in which the so-called ‘smart money’ are accumulating positions. The dark green and dark red areas represent the mark-up and mark-down respectively. These are, of course, interesting areas, however as a trader I’m keen to get in at the best price possible and this is one approach that can help. By itself it doesn’t tell you what is going to happen - you need other tools to help with your analysis there - it simply tells you “a big move might be about to happen”.

I hope someone here finds it a useful idea to experiment with, and if you haven't seen this indicator, it's quite fun to play with!