“Contrast” indicator - a good basis for scalping

Hello, ladies and gentlemen, Forex traders! Many people want to have an all-purpose indicator that can be used in different timeframes from short to daily. In addition, of course, informative value of the indicator is also important.

In today’s article, we will focus on the Contrast indicator: an all-use tool suitable for scalping as well as for longer-term trade. The basic principle of indicator operation is in contrast determination. That is, to determine the true nature of the current movement must be compared to the movement prior to it. This approach allows you to catch the new movements in the market, which will most likely continue.

Indicator Features

• Platform: Metatrader 4
• Currency pairs: Any
• Timeframe: Any
• Trading Hours: Around the clock
• Recommended brokers: Roboforex, Instaforex, Forex4you

Indicator settings

Indicator installation is similar to any other indicator for MT4 terminal. The indicator itself is available in two variations:

• First - in the form of lines on the chart forming a channel. This indicator has only one parameter - coeff. Increasing the coefficient pushes the lines further, and therefore more time to cross is needed. You can also specify a negative factor, then the signals will appear more frequently. Such a function may be needed for traders trading binary options.

• Second - in the form of a bar graph in a separate window, which shows the value of the indicator from different timeframes. In the settings, you can also specify the value of the coefficient and three timeframes, including the current one. Lines will appear from the bottom up, in this case: Day, Week, Month.

The second indicator is a more compact interpretation, thereby saving space on the chart. The second version uses the original indicator for the calculation, so the presence of both in the terminal data directory is mandatory.

An important characteristic of the Contrast indicator - is the lack of redrawing. Only the value of the current bar is redrawn, so the entire history remains relevant even after you restart the indicator or the terminal. Thus, the indicator is quite suitable for manual tests on history.

Main idea

Contrast author describes the idea inherent in the indicator with two postulates.

• Firstly, the future market movement can not be predicted with a probability greater than 50%;
• Secondly, an already formed trend will continue with a probability greater than 50%.

That is, the probability that the entrance to the deal in the direction of an existing movement will generate profits always slightly higher than a random entrance to the market. Contrast indicator’s idea is in a contradistinction between the current trend and past movements. This may be a change of the main movement, or in the case of very strong signals - formation of new movements after the flat. That is, when we notice a change in trend, we try to enter in the trend direction or trade on contrasts.

Initially, the indicator consisted of a single “Contrast” line (red line on the chart), which went to the opposite direction from the price. The price goes up, the contrast line goes down – we have an uptrend. Conversely, the price goes down and the contrast line goes up - downtrend. The entrance signal - the intersection of the price and the contrast line. Subsequently, the place of price took another author’s line. The new filter enhances the informative value of the indicator and smoothens stream quotations a little.

Testing

The entrance signal is determined very simply, especially in the case of the histogram version.

Buy signal:

The yellow line crosses the red bottom up, or a green bar appears on the histogram.

Sell signal:

The yellow line crosses the red one top down, or on a red bar appears on the histogram.

A simple adviser was created by the author to test indicator idea in the strategy tester. Fixed stop-loss and take-profit are used, 30 pips by default. Also, an order can be closed by a trailing stop (configurable via properties).

According to the tests results, the most reliable indicator shows signals in the H4 and D1 timeframes.

Also, judging by the results of preliminary tests, the indicator is able to make a profit even without additional filters. But do not forget that any indicator is only part of the strategy, and working with it alone is dangerous.

Contrast indicator provides us with a direct signal to enter the position. Thus, we can calculate the size of the stop-loss and take-profit. To filter, we can apply Bollinger Bands or classic support and resistance levels. Also, you can use the indicator itself as an auto-filter. It is believed that the signal received at the same time from multiple timeframes is much stronger. So, you can enter the market only when all 3 timeframes show the signal in one direction.

Conclusion

Regardless the inspiring results, try not to use this indicator alone. Trading by signals of just one indicator is a common mistake of newbies. Also, forget that there is no perfect tool on the market. Adjusting the indicator’s work to your needs, maybe, adding some reliable filters, you’ll manage to archive results, worth trading on a real account, but, above all, always try to conduct a deep test on history.

Download Contrast indicator

Take care, Michael

ForexTraderPortal.com