Kill Market Sentiments with Psychology of Contrarian Investor

Want to stand out from the market? Do you have a fearless mind and dare to take the step?

If you are one of those who doesn’t follow the herd mentality then Contrarian Investing Strategy is purely for you.
It is a way of trading where an investor goes in contradiction with market sentiments. Investor buys when others sell and sell when others buy.

This approach requires an understanding of market sentiments which comes under behavioural analysis.Traders usually overreact to the news that may be good or bad ending up with a hike or low in stock prices. But these trends do not last long and prices recover their values when investors come to their senses until some other news has reflected.

Contrarian investor gauge market sentiments with the help of news.
It goes interchangeable with value investing as investor looks for undervalued stocks.

Brief description

A contrarian investing strategy is a strategy where the investor chooses to invest in what majority of investor are not invested in and sells when the majority is willing to buy. As it is earlier said, with this, you stand out from general market sentiments.

This ensures that at the time of strong bearish trend when everyone is fearful and wants to sell, you will buy undervalued stocks only, that will have a value lower than its intrinsic value and so at the time of bullish trend when everyone is buying, you as a contrarian investor will get high price value for your stocks.

This strategy involves estimation of human behaviour and market sentiments that how will they react to a certain condition which can be done through behavioural analysis.

Behaviour finance suggests two type of behaviour one is Conservatism, where one’s notions and belief is revised insufficiently when introduced with new evidence, and second is Representativeness where individual’s judgement change with uncertainty and confront with new information.

Are you the right person? Who should use this?

If you are one from those who follow the herd and don’t dare to do something different, this is not for you. You should not even try this as fear may not even allow you to survive in the market.

An investor with an eye to forecast and acknowledge human behaviour and sentiments towards a market trend can become the best players. One should be good in analysing charts which show the present trend and figure out undervalued stocks.

The individual should understand the market trend if it’s temporary or because of some reason and trend may stay for long term.

If you want to be a contrarian investor, following this strategy you need to be brave enough, analysing every aspect and not following the crowd.

Key Points

  1. Don’t follow the herd, do opposite of what others do
  2. Timing is all that matters, make perfect entry and exit from the market
  3. Understanding Market sentiments is key source to get success in this strategy
  4. Can be used with value investing
  5. Get your hands on charts

Bottom line

At the end what matters is your money. It’s better to follow your own rule and learn from experience rather lose money from other’s advice. The only benefit of advice you can make is when you are able to judge that the advice is worth to accept or not.

Here the purpose is not to be contrarian rather think of yourself and take the right step.

As it is said
“It is actually pretty easy to be contrarian. It’s hard to be contrarian and right.”

Contrarian investment strategy

Post Author: Sushant Putatunda

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