Contrarian investing is a dynamic field and not a static one. The assumption that it’s a static field is held by the new breed of fashion contrarians, whose only contribution to this field has been to glamorize it and distort the true notion of being a contrarian investor.  These fashion contrarians are no different from those investors whose main driving force is raw emotions. These investors with the mass mindset only pretend to do things differently, but the moment fear or uncertainty is in the air, they flee for the exits like bandits being chased by the hounds of hell.   A real contrarian is generally familiar with the basic concept of mass psychology.  If you are not familiar with these rules, you are doing yourself a disservice and should catch up on them ASAP. The most basic tenet of mass psychology is that one does not abandon ship until the emotions have hit the boiling point and vice versa.  For example, if the market is in a bullish phase, you do not abandon ship just because the masses have jumped on the bandwagon. Instead you wait for them to move from the cautious to the extremely euphoric phase before bailing out.

At the Tactical Investor, while we embrace the concept of contrarian investing our true focus is on the joining the key rules of contrarian investing with the powerful concept of mass psychology. The combination of the two methodologies creates an extremely robust system. Psychology is the key driving force behind almost every human action and understanding it could significantly improve your overall experience and results as investor.

The following rules will provide both the novice and weathered investor with ideas that ought to improve his or her trading skills if implemented appropriately.  Discipline and patience are the keys to successful investing; nothing comes easily, for if it did, everyone would be able to do it.

These contrarian guidelines by no means encompass all the rules associated with the concept of contrarian investing.  However, they do provide you with a firm foundation on which to build your investment career.

1) Popular media (magazines, news outlets, newspapers, TV stations, etc) should be viewed in the same light as sewage; a waste product with a very bad smell. Use these outlets to determine what the masses are frothing about and what you should avoid or start getting out off or into.  Emotions should be at boiling point before you make any move. You do not oppose the masses just because they have jumped on the bandwagon; it’s only when the bandwagon is overloaded and about to buckle under its load that you should look for an exit and vice versa.

2)  Technical analysis plays a key part when it comes to investing, regardless of whether you choose to be a contrarian investor or not.  It is imperative that you take time to understand the basic tenets of this very important field. Try not to follow or focus only on the most popularly used Technical analysis indicators. You will be amazed at how effective some of the lesser known indicators are once you get to understand how they function and operate.

3) Spend time understanding the markets you are going to target or the sectors of the stock market you intend to play.  We have put up an extensive list of resources, all of which are free here. Free Trading Resources

4)  Formulate a sound plan.  Don’t be an imbecile and sit there wishing and hoping to catch a home run.  Those that adopt such notions, always catch a falling dagger, a process that is fraught with pain and misery.  The plan should include profit targets on each and every trade, and, an exit plan, in case the trade does not work out.

5)  Do not foolishly embrace Options until you grasp the key concepts of buying and selling stocks.  In other words, understand when to buy and when to sell……… Make some money first and then attempt your hand at options trading.

6) Learn to relax; if you don’t relax it’s really hard to win.  Disease is a body not at ease, so if you are not at ease, you will most certainly perform dismally in the markets.

7) The law of balancing comes into play here. When you win a significant amount of money, help one person in your life time and your rewards will be 100 fold.

Additional pointers for contrarian Investors

A genuine contrarian only jumps into the investment as the asset is trading at mouth-watering levels, and blood is flowing liberally in the streets……….. Buy when the mob is paralyzed with fear and panic when sell when they are buying hand over fist.

When you are overly certain or feeling ecstatic, flee for the exits.

Never get a hot head and think you know it all. Even the best can be taken out.  Make sure you have stops in place; the markets are currently very volatile.

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 tap you on the back or on the rear it’s time to flee for the exits. Buy low. Sell high.