Forex Trading: Investing Against Market Tendencies
Great financial bigwigs bought at the bottom of the market, thereby acquiring assets at greatly reduced prices. Trade against a trend can bring in the enormous income, but it is necessary to understand accurately that you do.
The simplest and at the same time main rule at stock exchange and in any speculative business: purchase cheaply, sell expensively. For realization of such rule it is necessary to make one of three:
1. To purchase at a discount
2. To sell with the margin
3. 1 and 2 simultaneously (the best variant)
During market recession when the crowd is adjusted it is pessimistic, the special kind of investors which want to take perspective shares at a discount wakes up. We already spoke about cost investment which has almost same purpose, but in the given strategy the essence is in other.
Heretics and the investors who are trading against tendencies of the market, or contrarians – the investors who play against general tendencies of the market. When everybody think that all is very bad, contrarians buy at a discount. When all think that all is very good, contrarians sell with the margin.
Logic of trade against a trend
It would seem, trade against a trend is wrong by determination, but it is not so. Trade against a trend doesn’t mean that it is necessary to sell the growing tool or to buy the falling. The sense is a little in other.
Trade against a trend is based on simple common sense and is based on 2 simple and logical rules:
if all say that the tool will grow, it means that everybody have already purchased and wait for its growth and if all have purchased it in turn means that purchasing will decrease that will lead to a stop of growth and the subsequent falling
if all say that the tool will fall, all have already sold and falling but if all have sold wait, there is already nothing to sell, both falling will stop also the market, possibly, will be developed.
Thus, trade against market tendencies consists in an actual turn of a trend at the right moment. When the ascending trend already has ripened and was sated, contrarian will put on falling, and on the contrary: when falling already has settled itself, contrarian will put on growth.
Trade against a trend is not for the ordinary investor
In the first, it is necessary to understand that not any share which has gone down in price, becomes at once attractive to trade against a trend. If you don’t understand, why the market behaves so, instead of differently if you yet don’t feel confidence of the actions it is better to refrain from trade against a tendency of the market.
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