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!

It didn’t feel like value at the time, but then again it rarely does. Yellow bars told me it might be, so time to dig deeper. Two positions on, TP hit for a 9:1RR, runner on to milk any extras.

I’m not ashamed to say the frustration of trading has brought me to tears in the past, so if you’re there right now, keep going, keep experimenting, keep learning.

Next step today: step away from the charts, tell my ego to stop being a wanker, calmly manage the runner and be grateful for whatever it gives.

Beastie wrote: Fri Dec 02, 2022 8:17 pm It didn’t feel like value at the time, but then again it rarely does. Yellow bars told me it might be, so time to dig deeper. Two positions on, TP hit for a 9:1RR, runner on to milk any extras.

very nice entries, Beastie, and superb RR - hope you're doing as well as it looks.
I would add for people that actually struggle:
Of course, some other day it may have turned around 164,83 and that would have been that...
Never judge your trading on the outcome of one trade (or 10 or 50 trades) because there is too much contingency involved.
If your trading has an edge it will materialize over 100 trades (to start off with) and that will give you a true hint as to your longer term RR (and that is the only relevant RR)

Thanks for sharing this, I think you may be onto something here! Right now I'm searching for similar indicators that have an accumulation aspect, like the braid filter. Thanks again for the theory

I was considering pairing this with some form of volume indicator, but I think that might contradict the whole theory of trading against traditional indicators

faulknertrader1 wrote: Wed Dec 28, 2022 1:19 am Right now I'm searching for similar indicators that have an accumulation aspect, like the braid filter.

Hey faulknertrader1,

The Braid Filter could probably work, or maybe a Standard Deviation if you set a threshold for it, I’m sure there are numerous ways.

In terms of volume, absolutely, I use it in my trading, but you’re better off using Volume Profile or VWAP instead of an oscillator for this.

In the image below, I’ve anchored the VWAP to the swing low/close. Price pulls back to the prior weeks POC, taps into the VWAP channel, with yellow bars below, and then makes a new high.


In the next image, price broke below the previous VWAP so I’ve anchored it to the swing high/close. Price pulls back into the VWAP channel to the POC from two weeks before, yellow bar below, and price makes a new low.


Of course, it’s up to you to experiment, add, take-away, and develop a strategy that works for you. To use the VWAP double click and drag the vertical line to where you want to anchor it. Personally I find closing prices more effective than the actual highs and lows that a zigzig would highlight.

Hope this helps, have fun!