Countertrend Trading

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DEFINITION of 'Countertrend Trading'

A type of swing-trading strategy that assumes a current trading trend will reverse and attempts to profit from that reversal. Countertrend trading is a medium-term strategy in which positions are held between several days and several weeks. Countertrend traders rely on graphs (such as the Bollinger Band®), indicators (such as the Aroon indicator) and oscillators (such as the relative strength index or Chande momentum oscillator) to make their decisions.

INVESTOPEDIA EXPLAINS 'Countertrend Trading'

Countertrend trading can be used as part of a diversification and risk-reduction strategy. To limit losses in the event that a trend does not reverse, traders should consider using strategies such as stops and time-based exits. Countertrend trading is one of the most common tools used by contrarian investors.

RELATED TERMS
  1. Trend

    The general direction of a market or of the price of an asset. ...
  2. Swing Trading

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  3. Aroon Oscillator

    A trend-following indicator that uses aspects of the Aroon indicator ...
  4. Indicator

    Statistics used to measure current conditions as well as to forecast ...
  5. Bollinger Band

    A band plotted two standard deviations away from a simple moving ...
  6. Technical Analysis

    A method of evaluating securities by analyzing statistics generated ...
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