Every trader wants to be a contrarian. You get to be the “smart money.” You buy low and sell high. Buy the dips and sell the rips. Contrarians may not always be right, but they certainly get attention.
Brett Steenbarger, everyone’s favorite expert on trading, did a study of this in 2006. He compared two hypothetical traders. One bought the market after a down day; the other bought after an up day. Remarkably, since the market usually goes up, the former trader did better. A lot better. It would be interesting to see an update on this study.
Dr. Brett, whose website is a treasure trove of ideas for trading ideas, discusses how this applies to emotions and trading:
It occurred to me after writing the post that, when I’ve developed quant models of market behavior than anticipated a move, I’ve often heard kudos from others about my “good call.”When I’m a psychologist and listening to my clients, helping them make changes in their lives by accessing strengths they didn’t realize they had, no one compliments me on good calls.
Our Stock Exchange gang does what Brett recommends–not prediction, but getting in tune with the market opportunities and avoiding emotion.
The fact that two members of the group do not have fresh ideas this week sends a message – one that I will discuss further in today’s conclusion.
Review
Our last Stock Exchange considered how to find trades in a low-volatility market. That topic worked like magic! Volatility picked up dramatically in the ensuing week. Maybe it was the power of guest expert Chuck Carnevale. Special thanks to him for his astute comments and good nature in joining in our conversation. If you missed it, please check back.
Market Tech Take
I hope to do something along the lines of a weekly review of important technical indicators. Our own key indicator, the Market Health Index (MHI), remains positive. Watch this space! Suggestions about your own favorite indicators are most welcome. If you have something good, we will run it on our special universe. You will get a result that you cannot see elsewhere.
Let’s turn to this week’s ideas.
This Week—Finding Contrarian Ideas
RoadRunner
(Commentary translated from various pecks, rapid movements and beeps).
Targa Resources (TRGP) was on a real tear between the start of November and the end of January. Beyond this three-month streak, the price has mostly leveled off. I take that as an opportunity.
