Key Rules for Contrarian Investing1) Popular media (magazines, news outlets, newspapers, TV stations, etc. really ) should be treated in the same light as toilet paper; it has some use, but its function is to perform a distasteful action. Thus use these outlets to determine what the masses are frothing about and what you should avoid or start getting out of or into. Remember the emotions should be at boiling point. You do not oppose the masses just because they started to jump on the bandwagon; its, only when the bandwagon is overloaded and about to buckle under the load it’s carrying 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 the time to understand the basic tenets of this very important field. Do your best 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 jump into 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 and then attempt your hand at options. The only exception to these rules is when you are selling covered calls and naked puts, both of which are safer than actually buying stocks if you understand the concept well. These two techniques can significantly boost your investment returns if you utilised properly. Options should also be part of an investment plan. Do not under any circumstance use all the funds in your portfolio to play options. That is a recipe for extreme pain and suffering.
6) Learn to Relax: Stress equates to a body not being at ease. 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 lifetime; your rewards will be 100 fold.
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