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The Contrast indicator is a technical trading tool designed to find short-term reversals. Numerous tests have shown that this indicator can be useful not only for position traders but also for scalpers.
The Contrast indicator got its name for one simple reason - its signals correspond to points at which bullish sentiments quickly change to bearish ones and vice versa.
The indicator is presented in the form of lines on the chart, forming a kind of channel.
Indicator calculations
The idea of calculating the values embedded in this algorithm can be characterized using two postulates:
1. The future movement of the market cannot be predicted with more than 50 percent probability;
2. The already established trend will continue with a probability of more than 50 percent.
According to the laws of logic and the theory of probability, any trading position opened in the foreign exchange market has equal chances of getting profit and loss. That is: 50% to 50%. And it really will be, if you make deals at random.
With exactly the same 50% probability of making a profit, the trader works by predicting the moments of price reversal and the continuation of the trend.
At the same time, if you make deals according to a clearly formed trend, the trader gets significantly more chances for profit. Most likely, the creator of the Contrast indicator tried to implement this in his technical creation, which he did very well.
Indicator settings
Contrast indicator has only one parameter - coeff. An increase in the coefficient further pushes the lines apart, and therefore they take more time to cross. If to set a negative coefficient; then, the signals will appear more often. The use of negative values may be useful for binary options traders.
Indicator signals
Signals for entering a position are defined very simply:
When the yellow line crosses the red one upwards, you can consider the option to open long positions. And when the yellow line crosses the red from top to bottom, you should consider the possibility of opening short positions.
The Contrast provides a direct signal to enter a position. Thus, the trader has to calculate the size of the stop loss and take profit. For the filter, you can apply the same Bollinger Bands or classic support and resistance levels. Also, the Contrast itself can be used as an filter in your strategy. This indicator is often used on several timeframes at the same time, since it is believed that the same signal received from different timeframes is much stronger.
Conclusion
In general, the Contrast tool is a fairly effective indicator, at least its signals allow you to keep your trading account afloat without resorting to using other auxiliary strategies.
A simple conclusion follows from this - if you combine the received signals with reliable instruments, it is possible that you will be able to create a profitable system. In addition, it should be noted that the Contrast indicator does not redraw the markup, so its historical signals can be trusted.
Tip: Can’t open the downloaded archive file (ZIP or RAR)?
Try WinRAR for Windows or The Unarchiver for Mac .
Do you need help with installing this indicator into MT4 for Windows or Mac OS? Our guide HERE will help you.
