Contrarian Approach to Day Trading

Contrarian
Approach
to Day Trading
By
www.ProfitableTradingTips.com

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.


Mix and Match


Any and all day trading
strategies can lead to profits.


Trend following, scalping in
day trading, and a contrarian
approach to day trading can
make you money.


Profits lie in learning the
required skill set, doing your
homework, and being there at
the trade station when
opportunities rise.


For more insights and useful
information about day trading
stocks, commodities, and foreign
currencies visit


Contrarian Approach to Day Trading

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