Creating a Contrarian Indicator Using Moving Averages in Python.
Why Ride the Trend When We Can Fade It?
Moving averages help us confirm and ride the trend. They are the most known technical indicator and this is because of their simplicity and their proven track record of adding value to the analyses. We can use them to find support and resistance levels, stops and targets, and to understand the underlying trend. This versatility makes them an indispensable tool in our trading arsenal.
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However, as statistics and common sense tell us, when something goes up, it must go down and therefore comes the idea of using moving averages as contrarian indicators rather than continuation indicators. How is this possible? Well, following the below logic will help us understand the intuition:
When prices get away from their…
