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Contrarian Trading WorksPosted by securities on: 2006-11-21 14:39:13
Contrarian Trading Works By Al Thomas Let’s say you want to buy some General Motors stock because you think it is going to go up. Your friend says don’t buy it because he thinks it is going to go down. Thinking about the same subject is contrary, but both can be wrong. It might only go sideways. To be contrary in the stock market is a good way to make money. Almost all brokers think alike. That is what they have been taught. My experience having hired many brokers when I owned a brokerage company I know this is a fact. Few know what they are doing or why they do it. To be a successful investor you must learn to be contrary. You must learn to think outside the box. When I was an exchange member and floor trader I was known as a contrarian. I always wanted to know where the majority of traders had their money. Not just 50% or 60% of them, but 80% or 90%. Then I would wait for a special technical indicator I used to tell me when the mass of traders started to change their minds so I could either sell or buy opposite to the crowd. Once that happens it was like an avalanche as the equity started down or climbed out of a big hole like a geyser. I was not always right, but when I was wrong the loss was very small. That is another contrarian “secret” of professional traders. The pros run quickly to keep losses small whereas the average trader and most brokers will watch and wait for it to come back so they can get out “even”. That’s a loser’s philosophy. How many investors you know have an exit strategy? All the contrarians do. They have gotten out of the box and know exactly when to run to protect their capital when they first buy or later as profits accumulate. They have a plan to keep the biggest part if the equity changes course to an opposite direction. When everyone gets bullish it is time to examine your positions to think about your exit. When the market gets so bad and folks are cursing their brokers more than usual it is time to think about buying. Wall Street has taught Joe Sixpack that he has to be invested all the time. They will never tell that cash is a position. If Joe had sold out the end of 2000 and been in a money market account for the next 2 years he would not have lost 40% to 60% or more of his money. Today everyone is bullish on oil. It has dropped more than 20% yet the talking heads continue to tell you this is only a correction and it is going much higher, maybe $100. There are many trapped with losses mounting each day. Without an exit strategy it can only get worse. Learn to think outside the box. Get away from crowd mentality. Be contrary. Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know. Copyright 2006 All rights reserved. |
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