Think Like a Contrarian

Here’s the thing with investors – most of them are wrong most of the time.

There are a number of reasons for this, but the most compelling is the “herding” behavior that seems to be part of human nature. As humans interact in the stock market, this behavioral bias distorts the market.

It also provides contrarian investors like us the opportunity for some nice profits.

Of course, taking the “other side” of a trade takes real guts. It’s not easy to stand by your own, independent analysis when 90% of the market disagrees with you (at best), or thinks you’re an idiot (at worst).

That’s why most investors shy away from contrarian opinions and investments. It’s just much easier to just go with the flow… to follow the herd.

So when a particular trend in the market persists, more investors are won over by the talking heads that tout the “in vogue” argument at the time.

And just when almost everyone has joined the party… the party ends.

After all, the market only works when there are buyers and sellers. If nearly everyone’s on the same side, prices reverse.

That’s one reason Harry and I won’t be surprised to see a spike in gold prices in the next few months. Trader sentiment on gold prices is as negative as it’s been in years. Take a look…

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This isn’t a bearish sign, as common sense would suggest. This is a raging bullish signal. Remember, you want to think like a contrarian so you must read sentiment charts in reverse.

So like Harry says, if the market is extremely bearish… there’s a good reason to be bullish.

Watch for gold to make one last push higher… before collapsing. 

If you haven’t done so already read the Survive & Prosper issue on “Will Gold Price Go Up or Down?.”

 

 

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Categories: Markets

About Author

Adam O'Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with the minimum risk. Adam has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high profit potential. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. He is editor of our hugely successful trading service, Cycle 9 Alert.