http://profitabletradingtips.com/trading-investing/contrarian-approach-to-day-trading
Contrarian Approach to Day Trading
When hysteria rules the markets it is often profitable to follow a contrarian approach to day trading. Contrarians, in stock trading, look for and take advantage of temporary market inefficiency, as do many stock traders. However, the contrarian approach to day trading often lies on the opposite side of those who studiously engage in trend following in day trading. In a contrarian approach to day trading, traders seek to understand both the psychology of trading and the fundamentals that eventually determine stock prices.
Profitable Inefficiency
If the stock market was totally and absolutely efficient only the fundamentals would drive stock prices. However, traders as well as long term investors look to gain advantage by predicting where stock prices will be in the future. When news hits the markets stock prices respond and often overshoot and then correct. When the news in confusing, there can be a great deal of price fluctuation. Long term investors think in months and years and day traders think in hours and minutes. Each looks to gain profit from market inefficiency. One of the best ways to profit from the news in day trading is to follow a contrarian approach.
Herd Mentality
Think of lemmings, those furry little critters that periodically run in herds over cliffs to fall into the sea. Then think of the dot com bubble some years ago, the volatile market preceding the 2008 market crash, and other times when herd mentality drove stock prices up beyond what was reasonable. The contrarian approach to day trading takes advantage of the “lemmings” that trade up stock prices in the absence of hard data or sell in panic without looking at the margin of safety of a stock. Profit for the contrarian lies in a firm grasp of fundamentals and a working knowledge of market psychology. Profitable day trading strategies commonly have to do with profiting from herd mentality.
The Fundamentals Rule, Eventually
Although technical analysis leads to short term profits, fundamentals eventually govern prices. It is in the reading of market sentiment about fundamentals and pricing that a contrarian approach to day trading can make money. A true contrarian picks his or her trades. He or she looks for overpriced or underpriced stocks to trade. In this way the contrarian approach to day trading resembles a value stock investor researching stocks and looking for a margin of safety and intrinsic stock value. When a contrarian has a clear view of where the stock price will eventually land he can look to where market inefficiency creates opportunity. The difference between value investing and a contrarian approach to day trading is the timeline. Day traders will want to close out their positions before the end of the trading day so their analysis deals with the shorter term.
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2. When hysteria rules the
markets it is often profitable to
follow a contrarian approach
to day trading.
www.ProfitableTradingTips.com
3. Contrarians, in stock
trading, look for and take
advantage of temporary
market inefficiency, as do
many stock traders.
www.ProfitableTradingTips.com
4. However, the contrarian
approach to day trading often
lies on the opposite side of
those who studiously engage
in trend following in day
trading.
www.ProfitableTradingTips.com
5. In a contrarian approach to
day trading, traders seek to
understand both the
psychology of trading and the
fundamentals that eventually
determine stock prices.
www.ProfitableTradingTips.com
7. If the stock market was totally
and absolutely efficient only
the fundamentals would drive
stock prices.
www.ProfitableTradingTips.com
8. However, traders as well as
long term investors look to
gain advantage by predicting
where stock prices will be in
the future.
www.ProfitableTradingTips.com
9. When news hits the markets
stock prices respond and
often overshoot and then
correct.
www.ProfitableTradingTips.com
10. When the news in
confusing, there can be a
great deal of price fluctuation.
www.ProfitableTradingTips.com
11. Long term investors think in
months and years and day
traders think in hours and
minutes.
www.ProfitableTradingTips.com
12. Each looks to gain profit from
market inefficiency.
www.ProfitableTradingTips.com
13. One of the best ways to profit
from the news in day trading is
to follow a contrarian
approach.
www.ProfitableTradingTips.com
15. Think of lemmings, those furry
little critters that periodically
run in herds over cliffs to fall
into the sea.
www.ProfitableTradingTips.com
16. Then think of the dot com
bubble some years ago, the
volatile market preceding the
2008 market crash, and other
times when herd mentality
drove stock prices up beyond
what was reasonable.
www.ProfitableTradingTips.com
17. The contrarian approach to
day trading takes advantage
of the “lemmings” that trade
up stock prices in the absence
of hard data or sell in panic
without looking at the margin
of safety of a stock.
www.ProfitableTradingTips.com
18. Profit for the contrarian lies in a
firm grasp of fundamentals and a
working knowledge of market
psychology. Profitable day
trading strategies commonly
have to do with profiting from
herd mentality.
www.ProfitableTradingTips.com
20. Although technical analysis
leads to short term
profits, fundamentals
eventually govern prices.
www.ProfitableTradingTips.com
21. It is in the reading of market
sentiment about fundamentals
and pricing that a contrarian
approach to day trading can
make money.
www.ProfitableTradingTips.com
22. A true contrarian picks his or
her trades. He or she looks for
overpriced or underpriced
stocks to trade.
www.ProfitableTradingTips.com
23. In this way the contrarian
approach to day trading
resembles a value stock
investor researching stocks
and looking for a margin of
safety and intrinsic stock
value.
www.ProfitableTradingTips.com
24. When a contrarian has a clear
view of where the stock price
will eventually land he can
look to where market
inefficiency creates
opportunity.
www.ProfitableTradingTips.com
25. The difference between value
investing and a contrarian
approach to day trading is the
timeline.
www.ProfitableTradingTips.com
26. Day traders will want to close
out their positions before the
end of the trading day so their
analysis deals with the shorter
term.
www.ProfitableTradingTips.com
28. Any and all day trading
strategies can lead to profits.
www.ProfitableTradingTips.com
29. Trend following, scalping in
day trading, and a contrarian
approach to day trading can
make you money.
www.ProfitableTradingTips.com
30. Profits lie in learning the
required skill set, doing your
homework, and being there at
the trade station when
opportunities rise.
www.ProfitableTradingTips.com
31. For more insights and useful
information about day trading
stocks, commodities, and foreign
currencies visit
www.ProfitableTradingTips.com
www.ProfitableTradingTips.com
