Here are a couple of suggestions, that can help you better understand what it means to be a contrarian investor, as opposed to a fashion contrarian. 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.
1) All popular magazines, news articles and TV stations should be used only for getting information on what you should not do, in other words 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
2) Spend time learning TA, 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 costs you nothing and took us time to put them up. Free Trading Resources
3) Have a plan. Don’t be a fool and sit there wishing for that big kill, those that do so, always catch a falling dagger, and everyone knows what happens when you do that.
4) 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.
5) Never ever, ever I will say it one more time, play Options only, 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.
Let me talk about something I mentioned some time ago. I stated that 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 are up more than 30% this year alone. Just catch the major trend and follow it. So you make 27K that brings the total to 117K but lets 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
6) Learn to relax; if you don’t relax it’s really hard to win.
7) This last rule many of you might or might not agree with me, help one person in your life time and your rewards will be 100 fold.
Additional foot notes
(These comments were made by Sol at the end of 2002)
A true 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 buy passes the basic technical analysis tests.
Most importantly, though, is that even though everything looks good, you are scared. You are thinking, “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.”
When you are overly confident, it’s time to flee. Never get a hot head and think you know it all. Even the best can be taken out. Keep your mental stops tight in this volatile market. Let me expand on the subject:
Contrarian investing is really about emotions. You are overcoming your emotions and playing on the emotions (fear or greed) of the crowd by taking a radical position.
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 on 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 huge 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.
Other interesting Articles
- The Dow has never been in A true Bear Market
- Contrarian Round Table II- Central Bankers
- Contrarian Round Table III- Inflation good or bad?
- Contrarian Round Table IV- Bear Market Etiquette
- Contrarian Round table V- The Fed
- A day late and A dollar Short
- Sol Talk
- Intro to Futures Trading