Contrarian investing made easy

Contrarian investing made easy

The psychology of contrarian investors; Gauge the sentiment before acting 

The first thing is to make sure you understand the difference between contrarian investing and Fashion Contrarian investing.  These contrarian investment guidelines by no means encompass everything one needs to know about trading, but it can seriously help you become a better trader/investor.

Rule 1

All popular magazines, news articles and TV stations should be used only for obtaining information that you don’t plan on using; you use this information to find out what the masses are doing.   For example,  if they tell you its time to buy gold, its time to get ready to sell if they tell you the market looks like its going to crash, we are probably close to a bottom etc

 Rule 2

Spend time learning Technical Analysis; this is very important. We have just updated the investor tools section on our web page. There are many educational resources there now, so use them it cost you nothing and took us time to put them up. Free Trading Resources

 Rule 3

Have a plan. only fools buy or sell stocks without a plan. The plan should include profit targets on each and every trade, plus and this very important, an exit plan, in case the trade does not work out.

Rule No 4 

Do not deal with options it should be part of your investment plan but not your only plan. You are far better of playing futures if you are going to waste all your money on options only, futures are much cleaner, less slippage, less spread and you can get a feel for it because you can study the pattern of one market. I am not saying that everyone should get up and play futures, but if you are going to be a fool and play only options, then the wiser thing to do would be to learn futures and attempt to get in tune with one of the markets ie Dow futures. In addition, remember the saying “A fool and his money are soon parted”; having said that options are absolutely fabulous instruments to lock in spectacular profits.

Contrarian Investing No 5

With proper money management, one could lose his entire options portfolio and still walk away with a profit.

We will use a 100K portfolio for this example

10% is 10K

Okay, you lose the entire 10K by playing options idiotically.

Now you play nice and safely with the other 90K and you make 30% for the year. Don’t say it’s not possible; all of you who have long-term positions in Gold is up more than 30% this year alone. Just catch the major trend and follow it. So you make 27K so you know have a total of 117K, but let’s say you make only 20% that brings the total to 108K, you could even make 15% and still walk away with a profit.

The key here is that you live to fight again and then you can take some of these profits and play options once more

The most important factor to remember is that all stock market crashes or strong corrections should be viewed through a bullish lens from a long-term perspective.

The stock market is not static its dynamic

In addition to the above essential rules of contrarian investing, investors would do well to read the following new notes.  Investing is not a static field; it’s a dynamic field, and you have to in it to win it. In other words, just sitting on the sidelines hoping to gather all the information via theoretical models will only work well in an intellectual environment. Real life and actual market action is an entirely different beast.  Start small, learn from your mistakes, keep notes and when you start to trade successfully slowly increase the dollar amount of your investments.

An accurate measure is that you buy because the price is at mouth-watering levels, it’s in a strong sector, and you checked the charts. Your purchase passes the necessary technical analysis tests.

One key point to remember is that even though everything looks good, you should still be nervous or scared. You should be saying something like this, “Hey, am I the only one buying. I don’t want to go against the crowd. A true Contrarian always feels this fear, and you have to fight it, and say, “Now is the time to buy.”

Over Confidence is dangerous

When you are overly confident, it’s time to flee.  Even the best can be taken out. Keep your mental stops tight in this volatile market. Let me expand on the subject:

When you take a position and people look at you with disdain or shock, you know you are doing the right thing!. When they pat you on the back or the rear, it’s time to flee for the exits Gold and silver and commodities are still hated with a passion. Therefore, one has to understand that the massive hate for this sector makes it the best contrarian play ever. Get it? Buy low. Sell high.

Finally, we hope that these contrarian investment guidelines prove to be useful to you now and in the years to come.


Market crashes -The best time to buy stocks

Best time to buy stocks

While Experts Panic Tactical Investor states Stock Market Crashes and Bear Markets are Buying opportunities

We decided to apply the simple concept of pricing the Dow in Gold and Silver in the same way we did in an article titled Dow 1200 Illusion or? We will take the low of the Dow in the last four years and the low that gold put in the last four years. As the Dow is priced in Dollars, we will divide the price of gold into the Dow. For the record, we could choose other price points as they only serve to illustrate our point.

In Oct 2002 the Dow was trading at 7200 (4-year chart), and Gold was trading roughly around 300.



Gold chart

If we divide 7200 by 300 (the price of Gold), we get 24 ounces. Now it took 24 ounces of Gold to buy the Dow back in Oct 2002 (remember we taking the Dow’s lows into consideration and not it’s highs) so it should take at least 24 ounces or more to buy the Dow today. Let’s check that figure out.In May of this year, the Dow put in a new 52 week high and almost tested its old all-time high of roughly 11700. For argument’s sake, we will assume that the Dow traded to 11700 in May. At that time Gold put in a high of roughly 720.

11700 divide by 720 = 16.25

Back in 0ct 2002, it took 24 ounces to buy the Dow and at this time it was trading at a four-year low. This means that the Dow was trading higher back in Oct 2002 then it was today because today it takes 8 ounces less of Gold to buy the Dow when it’s trading at close to a new five years high. For the Dow just to break even to its Oct 2002 levels it would have to be at (24 X 720) 17280.

The Dow only made it to 11700 so far. That mean the Dow has corrected over 35% as it should be at 17280 instead it’s below 11700. Market technicians state that we are in a bear market if the market has corrected over 20%. Based on these figures we have corrected over 35%, yet the Dow has just put in a series of new illusory 52 week highs. Hence, in reality, the market could technically rally a lot more and still be in a bear market. The funny part is that the bears are right, but they just don’t know how to use this info, and the bulls are wrong, but they happen to use the info for the time being in the right manner.


You might also find this related article to be of interestShould you fear Stock Market Crashes

If we use Silver as the constant, the figure we get is even more outrageous, and it suggests that the markets have corrected even more than 35%.

Silver was trading around the 5.15 mark in Oct 2002.

Dow 7200 divided by 5.15 = 1398 ounces

May 06 Silver traded roughly to 15 dollars

1398 X 15= 20970; that’s the level the Dow should be just to equal the level it was trading in Oct 2002 when priced in silver.

This means that the Dow has already corrected a whopping 44.2%, and yet it has put in a series of new 52 week highs. These highs are all illusory in nature.

Since the Dow is priced in dollars lets, perform a final test on the Dow. The Dow hit an all-time high back in 2000 (look at the picture below). To simplify matters, let’s assume the value of this high was 11700 (actually it’s higher).

DOW chart 2006

Dollar chart 2006

Now let’s look at what the dollar was doing in the same period. At the time the Dow put in it’s all time high the dollar index was trading around 105; this is roughly 20 points (currently in the 85 ranges) lower than where it’s trading right now. On a % basis, it works out to 19.5%. To make things simple, we will round it off to 20. That means the in today’s dollars the Dow would have to trade 20% higher than the high it put back in 2000 just to break even. At this point, the chances of the Dow trading to the 14040 price point level are slim to none. If we were wildly optimistic we would probably issue a target of 12600 at the most; for the record, we are not wildly optimistic at this point.

Conclusion; forget the noise and focus on the trend

This is yet another completely out of the box way of examining the markets and what they are doing. This viewpoint provides yet another valid reason to support our bullish outlook on the intermediate time frames. We are still bearish when taking the long-term view. However, a lot can happen between the short, intermediate and long time frames. If you are not correctly positioned, you could end up bankrupt while being right.

One could technically state that the market is only experiencing a long dead cat’s bounce or that we are in a long-term bear that is truly invisible for the time being. In the end, one must understand that when one is dealing with the markets that nothing remains the same forever; those who examine the markets with closed eyes and a closed mindset will find that their wallets enter into the empty rather rapidly.  This little exercise also very clearly illustrates the evils of inflation.

Since we can’t know what knowledge will be most needed in the future, it is senseless to try to teach it in advance. Instead, we should try to turn out people who love learning so much and learn so well that they will be able to learn whatever needs to be learned. John Holt 1908-1967, Australian Politician, Prime Minister

Final note

Please remember we are just offering another possible way of looking at the Dow. Do not only jump on the super bullish bandwagon and assume that the Dow is going to keep soaring upwards forever.

Charts were provided courtesy of prophet finance

Additional Suggestions

If you seek freedom, the 1st task is to attain financial freedom so that you can break free the clutches of the top players who seek to enslave you. They want you to run in a circle like a hamster that runs on a spinning wheel; the hamster thinks the faster it runs the further it will go, but sadly it is going nowhere.

We teach how to use Mass psychology to your advantage, how to view disasters as opportunities and how not to let the media manipulate you and direct you towards actions that could be detrimental to your overall well-being.  Visit the investing for dummies section of our website; it contains a plethora of free resources and covers the most important aspects of mass psychology.

Secondly, subscribe to our free newsletter to keep abreast of the latest developments. Change begins now and not tomorrow, for tomorrow never comes. Understand that nothing will change if you don’t alter your perspective and change your mindset. If you cling to the mass mindset, the top players will continue to fleece you; the choice is yours; resist and break free or sit down and do nothing.


Everything you wanted to know about psychology and investing

Crowd psychology and investing

Over the years we have found out that the most significant dynamic force that drives the markets is emotions. Psychology is the study of emotions and mass psychology is the study of the masses. This is why we put together the psychology for dummies section. Our, focus is on teaching individuals, how to use Crowd Psychology to their advantage.

Once you understand how to use this data you can further refine your skills by mastering the art of Technical Mass psychology and investing Analysis.  We have dedicated a huge amount of time to put out the Psychology for Dummies section, and we hope it helps shed some light on this topic.  Understanding how the markets operate is not something that can be mastered in 1-3 day.

Identifying the problem is over 80% of the solution. Once you have identified the problem, you can focus on the solution. In this instance, the psychology for dummies section has done most of the work for you.  Finally, before you start trading with real money, our advice is to paper trade for a while.  You will find out that there are things you can only learn from experience and not by simply reading a text.  After paper, trading, you should start playing with small amounts of real money and then slowly increase the amount of money you commit to each trade.

Investing for dummies; Mass Psychology resources 

Investing for dummies: Contrarian Investing Ideas


Investing for dummies: Technical analysis and fundamental investment rules


Investing for dummies: Dividend and Growth investing ideas 

Random Thoughts on Investing for dummies

If you like a guiding hand while you slowly master this process, consider signing up for the market update.   We focus on  Crowd Psychology and utilise Key proprietary tools that we have spent decades developing.  The most efficient of which is the Trend Indicator.   What makes the market update service different? Our approach, we do not fixate only on issuing trades but also on helping the individual understand the markets and become a better trader.

Courtesy of Tactical Investor


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