How to Be a Contrarian Trader
The stock market landscape abounds with many different types of trading strategies. The success of each is debatable but each has its own merits. One such strategy is that of a contrarian trader. As the name suggests a contrarian trader goes against conventional wisdom with his or her trades. The rules of a contrarian trader are easy to follow but the success is dependent largely on the vagaries of the market.
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Instructions
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Think for yourself when trading stocks. Contrarian traders do not follow the investing herd and in fact, they usually trade opposite the masses, hence the name contrarian.
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Have an exit strategy and price point to get out. Contrarian investors do not buy a stock without a price point on the stock at which point they will sell the stock. A price point is the specific dollar amount that the contrarian investor believes is the high point of a certain stock.
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Determine what stock most investors are buying and sell that stock. When a stock is most popular that is usually when the price is the highest and it is time to sell.
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Discern which stock those investors are selling in mass. If you identify a stock that other traders are selling at a high rate, but the financial reports on the stock are solid, then a contrarian investor would buy this stock.
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Establish a technical indication that signals you to buy or sell a stock. Analyzing each stock individually can be laborious if you do not establish a fixed set of indicators that signal to a contrarian trader that it is time to buy or sell the stock. For instance, you may decide to establish an indicator that says if 80% of the mutual funds with assets over a billion dollars own a certain stock, it is time to sell.
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