Investment Strategy
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It means that you bullish when others are bearish and vice-versa.It mostly helps when you buy low and sell high i.e when there is a price mismatch.
Suppose a stock has gone up too much, it has to come down.Thus a contrarian investor sell at very high price and buy low and vice-versa
Ex- In financial crises of 2007-08, market has gone down too much.This is a great opportunity for contrarian investor to buy stocks and now you see stocks are high again.So in these bullish times a contrarian investor sell stocks and thus makes huge profits.
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when u r a bear in a bull market, and bull in a bear market, u r a contrarian investor…
Contrarian investors take a bet that the current sentiment in the stock / sector is over exaggerate… hence they expect the counter sentiment to emerge. The sentiment could be bullish or bearish.
For example till recently Titan industries Ltd was massively sold by investors in the backdrop of gold import duty issues. Sentiment was highly bearish…however contrarian investors thought that the negative sentiment is over exaggerated and they ended up buying the stock.
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Hi all traders, in addition to replies of members above I would like to give some technical points so as to help a trader who wants to go contrary to the prevailing trend, like I personally use bollinger band with 5 sma
buy rules: the bull candle should close above 5 sma after touching the lower bband and stoploss will be below the low of previous bearish candle, though the contrarian success ratio is around 50% but he made profit ultimately, as the risk to reward ratio will be more than 1:4 and above, one should have courage to trade against the trade, the stoploss will be very small as compared to target.
there may be two scenarios: one is if the market is side ways it will give respect to our trade entry as we are taking it in the bottom not at the top as we do in trending market.
second case, if the market is trending then upon our triggering stoploss we enter a new short position
I will summarize once again, when u enter a long trade say 100 shares by placing stop buy order above the high of bullish candle as mentioned above with stoploss double quantity i.e.200 shares below the low of bearish candle mentioned above
if price goes as we expected then trial stoploss and cancel the earlier stoploss of 200 shares
if price goes against our position then from 200 shares, 100 shares will be squared off in loss and new short position is open with 100 shares and place the stoploss above the high of previous candles
I have traded in banknifty today ie 24 march 2015, anyone can see the chart and revert me if there is any doubt, if some one interested i may show them or you can check by yourself after applying indicators i mentioned above, one more thing your stoploss will be triggering 50 % of time in worst case scenario, but the ultimate profit will be more becoz of risk reward ratio.
if you have any doubts you can ask [email protected] or 7386011200
whole idea of contrarian investing is to buy cheap and sell dear, like my friend Ekansh pointed.