Contrarian Trader or Trend Trader?

Tom Gentile

Posted in
Daily Report

By: Tom Gentile
May 10th, 2022

2 mins read

How you Trade is Your Decision

Yesterday the discussion was what it means to be a contrarian trader.

The idea behind being a contrarian trader is that you would not fall victim to the herd. If everyone is doing things one way, and it isn’t necessarily the right way, everyone in that group is at risk.

Of course, if things are going well they have a chance of continuing to do so for a period of time.

We are in a bearish market environment right now and eventually that will end.

The discussion of contrarian trading yesterday was to speak to the mindset of trying to find sectors and industries, hence stocks or ETF’s that may be bucking that trend. It was encouraged for one to assess support levels, study price behavior at those levels and if a bounce seemed likely consider an option trade at that time.

To be a Trend Trader

The flip side of being a contrarian trader is to be a Trend Trader.

Just because we talked about being a contrarian trader as a way to gain a trading edge, there is some merit to trading with the trend.

A trend trader is one that sees an uptrend or downtrend in the market, assess the trend should last months or more and positions themselves to be in the market and plan to ride out the momentum for as long as they can.

They look for more of a global economic assessment and geopolitical concerns and less on technical chart patterns, per se.

The trend can be an uptrend as it is in Oil or a downtrend like Bonds.

Yesterday, images of the Morning Reports were given so one can decide if they see an opportunity from a contrarian view.

Equities overall, are in a downtrend, but if they saw a support level on a stock whose option made a bullish list that would be a place to discuss further with their broker.

Today’s images are provided so if one sees an option on a stock they feel is likely to trend in the current direction of the markets (sector or industry it is in) they can consider an option from a trend trader’s perspective.

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Disclaimers

Stock and options trading has large potential rewards, but also large potential risk.

You must be aware of the risks and be willing to accept them in order to invest in the stock and options market. Do not trade with money you cannot afford to lose.

This is neither an offer to buy/sell/ or recommend a particular stock or option.

Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been actually executed, the results may have under or overcompensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with hindsight.

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