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Which
Type of Trader Are You? In the wide world of directional trading there are basically two
species - trend followers and contrarians. Trend followers take the "hitch
your wagon to a star" kind of approach. When they see a stock moving in a
particular direction, they figure that someone smarter than they are must know
something. So, they jump in the fray and hope for the best. Whether they profit
or not depends largely on when they have this epiphany. If they get in early in
the trend, they may make a few bucks. If they come late to the dance, all the pretty girls are already
dancing and the song is almost over. So, you either dance with a Linda Tripp
look-a-like -- or you go home. You've lost your pride, the cover charge, and
then some. A few stiff drinks may make your Linda Tripp look like Brittany
Spears, but when you sober up, the reality is there (ugghhh),
and your money is still gone. Contrarians are a different breed. They believe
that when too many people agree on a direction, they're simply confused, don't
understand the situation and are in for a rude financial awakening. Contrarians
believe that an overwhelming majority of retail traders tend to buy high and
sell low. Instead of jumping on a bandwagon (trend), contrarians try to determine when the euphoria will end and then short
the herd of traders who will be scrambling to get out. There are a
number of mutual funds who use contrarian strategies
to take advantage of the follies of retail traders. A Contrarian
Story My son is a daytrader - a very successful
one. At the office where he plies his craft, there are currently five other
traders. They are the few survivors. Years ago, when the market was hot, there
were four or five daytrading offices in metropolitan When the irrational market hit the wall and fell like ton of
manure, so did the mass of irrational daytraders.
They only knew one style of trading, couldn't make the adjustment, and watched
in amazement as they gave back most, or all, of what they made. An occasional visitor to the office is a former daytrader named Little Richard. A great guy, about
5'6", he was affectionately known as their "contrarian
indicator." There are some people in this world who have the Midas touch.
Whatever they touch turns to gold. Then there are those who, whatever they
touch turns to something you wouldn't want to step in.
Well, Little Richard was the latter. Whenever Little Richard would enthusiastically announce that he
just bought 500 shares of XYZ stock, the other traders in the office would
immediately short XYZ stock. It worked about 80% of the time. Notice I said
Little Richard is a "former" daytrader. Identifying A Trend Lotsa luck!! It ain't easy. Technical analysis may
give you some guidance. But, the question is, once you've identified the trend,
how much trend is left? That's the $64,000 question. Look at the trend line. The steeper the trend line, the more
powerful the trend may be. Some traders look for crossing moving average lines
or other momentum indicators. Throw a few support and/or resistance lines on the chart. Then,
add some moving averages. Toss in another an oscillator and, before you know
it, the chart looks like last night's spaghetti. A good knowledge of technical
analysis can make some sense of it. Some say it gives traders an edge. Both the momentum and/or contrarian
approaches can work. It all depends on the trading skill, the chart reading
skills and self-discipline of the individual trader. Developing these skills is
not like Minute Rice. It takes time, effort, practice and a commitment. The
market is a non-forgiving animal that eats up traders for lunch and spits out
what little is left. You don't want to take a knife to a gunfight. Be prepared. Mike Parnos is an options instructor and mentor. Online Trading Academy trading knowledge...your most valuable form of capital.
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- [obrolan-bandar] Trend followers and contrarians... Aria Bela Nusa
- [obrolan-bandar] Trend followers and contrarians... Aria Bela Nusa
- [obrolan-bandar] AALI Deddy
