Countertrend Trading

AAA

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. Indicator

    Indicators are statistics used to measure current conditions ...
  2. Trend

    The general direction of a market or of the price of an asset. ...
  3. Bollinger Band®

    A band plotted two standard deviations away from a simple moving ...
  4. Swing Trading

    A style of trading that attempts to capture gains in a stock ...
  5. Relative Strength Index - RSI

    A technical momentum indicator that compares the magnitude of ...
  6. Technical Analysis

    A method of evaluating securities by analyzing statistics generated ...
RELATED FAQS
  1. What is a common strategy traders implement when using the Percentage Price Oscillator ...

    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 >>
  5. How does a swing trader use the stochastic oscillator?

    The stochastic oscillator is a momentum technical indicator used to indicate points of possible price reversals. Swing traders ... Read Full Answer >>
  6. How can I spot trading opportunities looking at year-to-date (YTD) performance?

    Trading opportunities on the long side can be spotted by looking at stocks with the worst year-to-date (YTD) performance, ... Read Full Answer >>
Related Articles
  1. Active Trading Fundamentals

    Confirming Price Movements With Volume Oscillators

    Use this indicator to validate a change in price direction and moving averages.
  2. Active Trading

    Finding The Trend With Aroon

    Don't be confused about whether a long-term trend will continue, stall or reverse.
  3. Active Trading

    An Introduction To The Relative Strength Index

    Learn the difference between relative strength and the relative strength index, a frequently used technical analysis oscillator.
  4. Trading Strategies

    Momentum Indicates Stock Price Strength

    Momentum can be used with other tools to be an effective buy/sell indicator.
  5. Active Trading

    An Introduction To Oscillators

    Find out how this indicator may help improve the average investor's entry and exit points.
  6. Forex Education

    Anticipate Trends To Find Profits

    Monitoring your trades in real-time can help you anticipate their outcomes.
  7. Active Trading

    Candlesticks And Oscillators For Successful Swing Trades

    Take advantage of short-term price moves by pinpointing reversals.
  8. Chart Advisor

    Chart Advisor for July 3 2015

    Weekly technical summary of the major U.S. indexes.
  9. Chart Advisor

    Stocks Breaking to Downside - Time to Sell?

    These stocks have broken patterns or trendlines to downside, indicating more selling could be coming.
  10. Chart Advisor

    3 Ways To Trade The Bounce In Coal

    News from the Supreme Court has caused active traders to turn their attention to the coal markets. We'll take a look at how to trade the bounce.

You May Also Like

Hot Definitions
  1. Inbound Cash Flow

    Any currency that a company or individual receives through conducting a transaction with another party. Inbound cash flow ...
  2. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  3. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  4. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  5. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  6. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!