Trading against the trend with the Cayman indicator
“If you want to make a profit, be in the minority.” This statement is partly correct, although the theory of trading against the trend has many opponents. On the one hand, it seems logical to open a trade in the direction of an uptrend, that is, a strong movement supported by the majority. On the other hand, it is a trap. The rapid growth of the trend can be triggered by an influx of just such traders who want to make money. The big players will at some point open opposite trades, taking the money from the hamsters.
The question is: how to distinguish a speculative trend from a trend that really has a growth base? Answer: according to the mood of traders, according to their propensity to risk at the current moment, the length of stops, the volume of transactions, the length of take profits. All of this is factored into the formula for market sentiment indicators. There are many deals, but they are small – the market is speculative, deals stay in the market for a long time – traders trust the trend. One of these tools is the Cayman indicator.
Cayman indicator: essence, formula, principle of operation
The Cayman indicator is a proprietary indicator developed by the analysts of the broker AMarkets. He is unique in his approach to general market analysis. The market situation is assessed simultaneously for the 11 most popular currency pairs. This allows us to conclude whether there is a local speculative surge in a particular instrument or the entire market has a clearly directed trend. It identifies the lows and highs for each currency pair, marking the most successful entry points on the reversal.
The formula of the indicator is not disclosed by the developers. It is only known that Cayman estimates the number of long and short positions, finding critical points. That is, those points at which the ratio of transactions will begin to reverse in the opposite direction.
The indicator value changes from 0 to 100. The dynamic (changeable) levels are lines 25 and 75. If the indicator value increases, then the volume of purchases for a particular currency pair is growing and it makes sense to bet on a correction. Extreme boundaries are almost never reached, that is, the Cayman indicator does not touch levels 0 and 100.
Principles of working with the indicator:
- Over a fixed historical period, critical reversal levels are monitored. They are different for each currency pair. For example, one pair may have frequent reversals when it reaches 70% of the number of long positions, while the other – at 90% of the value.
- The behavior of the indicator in critical zones is monitored. In theory, reaching a critical level is already a potential signal for a reversal, but the market has an inertial component. The indicator can enter a critical zone (for example, rise above 70 or 90%) and turn around in it.
- The deal is opened at the time of the reversal.
The principle of working in overbought and oversold zones is similar to working with a stochastic, with the only difference that the stochastic has clearly defined levels (20 and 80), while the Caiman indicator has dynamic levels, different for each currency pair.
Broker analysts recommend analyzing the indicator simultaneously on several timeframes. If the market is under the influence of buyers, then the rising indicator will behave the same on all intervals. But it is better to take long intervals from H1 as a basis, since local speculative bursts are possible on minute charts.
The indicator is available for free on the AMarkets website after registering a personal account, the archive contains the indicator itself and the template. You can also install a widget in MT4 (online data display) and a trading system, an advisor based on Cayman.