Countertrading can be defined as a trading strategy or a trading behavior where an assumption is made that the current trading trend will be reversed and the new reversed trend will result in an increased profit. Countertrend trading is not a short term or a long term trading strategy instead it is a medium term strategy where the trading strategy is kept steady for several days or several weeks. The dependants of countertrend trading mostly depend on graphs and oscillators that are used to find out trends and traders rely on graphs such as Bollinger Band and oscillators such as Aroon indicator to see the present trends of the market and the desired counter trend to deal with the current trends. Relative Strength Index is also a tool that is used by the traders during countertrend trading in order to make their decisions.
The major objective of the countertrend trading is to use it as a risk diversification and risk reduction strategy within the business and within the market. In order to avoid the reversal of the trends and to avoid losses the investors and the traders must make timely decisions such as timely stop in the investment and timely exit from the market. Countertrend trading is one of the most important and one of the most widely used tool by the contrarian investors.
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