What are the indicators that can help me identify an expected reversal in a contrarian scenario? I assume MACD is one of them. Anyone with relevant experience?
Its worth looking at divergence between RSI and price. For example, when price has been rising consistently and makes a new high, but RSI is actually lower than it was during a previous price high. And vice versa for falling prices.
Of course, none of these things can work on 100% of the occasions when you see them, so it is a calculation based on the individual’s strategy and risk tolerance whether it is worth getting out of a trend-following trade and losing an unknowable (and therefore unlimited) amount of profit or staying in it and taking a pre-determined (and therefore limited) loss.
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You can also compare the indicators with other indicators for divergences. For example RSI higher highs but Stochastik lower highes means there could be something “fishy”, but also other activities have to be taken into account-just one signal is nothing!
So if you spot a bearish divergence among indicator and price,(bearish means in that case, that indicator says “down” and price says “up”),and you also see some tweezer top on another time frame, and additional bearish cross over Moving average, and you see the third point down of SAR, and you also see that the Ichi Cloud changes from green to red and MACD starts to turn, you can sell your house and with the money you can go “all in” short…
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I concur about RSI, I’ve known people who used it in those scenarios.
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It can be said that Moving Averages are “first love” for beginner traders, so impressive and hard to forget. Simplicity in its use is the main reason why this indicator is a favorite choice.