The Contrarian Trader

In the stock trading and investment world , there are two opposing philosophical camps. The first camp subscribes to the notion that ” the trend is your friend ” and that you must identify the trend and ride it in the direction that it is moving. Most traders fall into this category. A trend-rider is an integral part of the crowd , sensing its direction and merging with it. There is a compelling logic to this philosophy because it works perfectly well in the right context. Trend riders can do very well when they buy into a rallying market.

The second camp subscribes to the notion that , in order to make real money , you must do what is contrary to the crowd. Thus , to be a contrarian in the market means that you identify the trend and trade in the opposite direction , buying on widely perceived weakness and selling on widely perceived strength. Do you have the guts to trade in this way ? Not for me … There is a compelling logic to this philosophy , because it works very well in the right context. Contrarians can profit very nicely by catching the trend as it breaks in the opposite direction , leaving the crowd on the wrong side of the move. I feel this is something like trading the retracement of a trending move …

I just cannot figure out how and when the retracement begins. So all in all , I am a trend follower. Trend is my best friend !