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.

BREAKING DOWN '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.

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RELATED FAQS
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    A common trading strategy stock traders implement using the percentage price oscillator (PPO) involves using the indicator ... Read Full Answer >>
  2. Why is the Dynamic Momentum Index important for traders and analysts?

    The dynamic momentum index is important for traders and market analysts, because it is a more sensitive momentum indicator ... Read Full Answer >>
  3. How do countertrend trading strategies work?

    Countertrend trading strategies are used to enter a market that may be changing direction or simply to profit from the ordinary ... Read Full Answer >>
  4. Why do some traders implement counter-trend trading into their core strategies?

    Much like long-term investors purchase alternative assets to hold as a hedge in their portfolios, some traders use countertrend ... Read Full Answer >>
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