The Art of Contrarian Trading: How to Profit from Crowd Behavior in the Financial Markets (Wiley Trading)

The Art of Contrarian Trading: How to Profit from Crowd Behavior in the Financial Markets (Wiley Trading)

Carl Futia

Language: English

Pages: 232

ISBN: 0470325070

Format: PDF / Kindle (mobi) / ePub


Why is it so hard to beat the market? How can you avoid getting caught in bubbles and crashes? You will find the answers in Carl Futia's new book, "The Art of Contrarian Trading." This book will teach you Futia's novel method of contrarian trading from the ground up. In 16 chapters filled with facts and many historical examples Futia explains the principles and practice of contrarian trading. Discover the Edge which separates winning speculators from the losers. Find out how to apply the No Free Lunch principle to identify profitable trading methods. Learn about the wisdom and the follies of investment crowds - and how crowds are formed by information cascades that drive stock prices too high or too low relative to fair value. Discover the power of your Media Diary - and how to use it to spot these information cascades, measure the strength of the crowd's beliefs, and decide when the crowd's view is about to be proven wrong.

You will watch Futia apply these principles of contrarian trading to navigate safely and profitably through the last 26 tumultuous years of roller coaster swings in the U.S. stock market - a time during which Futia kept his own media diary and developed his Grand Strategy of Contrarian Trading. See how this Grand Strategy worked during the Great Bull Market of 1982-2000. Watch the Contrarian Rebalancing technique in practice during the dot.com crash of 2000-2002. Find out when the Aggressive Contrarian Trader bought and sold during the bull market of 2002-2007. Read about the causes of the Panic of 2008 and ups and downs of contrarian trading during that dangerous time.

Futia shows you how the market turning points during the 1982-2008 period were foreshadowed by magazine covers and newspaper headlines that astonishingly and consistently encouraged investors to do the wrong thing at the wrong time. By monitoring crowd beliefs revealed by news media headlines - and with the guidance provided by the many historical examples Futia provides - a trader or investor will be well-equipped to anticipate and profit from market turning points.

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identification of information transmitted instincts and the search for certainty life cycle and psychology of birth and death cycle life within mass media and mature investment and mental unity of mistakes versus fair value monitoring the markets new information economy personal flexibility and pied pipers of recognizing stock market bubble of 1994-2000 suggestibility, volatility, and disintegration tolerance Investment for Appreciation (Angas) Investment goals Investment

This willing suspension of independent thought by crowd members is the explanation for the market mistake associated with the crowd. As the crowd’s size grows, its collective market position forces the market price much higher than any reasonable estimate of fair value. The resulting bubble may well keep the market price too high for a sustained period of time if the group’s social bonds are strong and continually reinforced. But eventually all such bubbles must deflate as the underlying forces

the beauty contest whose choice of the most beautiful contestant most closely corresponds to the average choice made by all the other observers. He says: Each competitor has to pick, not those faces which he himself finds prettiest, but those which he thinks likeliest to catch the fancy of the other competitors, all of whom are looking at the problem from the same point of view. It is not a case of choosing those which, to the best of one’s judgment, are really the prettiest, nor even those

strategy described later in the chapter would not have sold until early 2001, and then near the S&P 1,250 level. Here I want to illustrate the experience of a trader with only average or below-average skills. At what level in the S&P might this trader have restored his original long position? I think there was a very good contrarian buy opportunity in the S&P 1,000 to 1,050 range in October 1998. But let’s suppose our hypothetical trader passed this opportunity up for some reason. (Again, an

mistakes. Competition among speculators will reduce the returns earned by their statistical methodologies to the returns earned by the buy-and-hold strategy. The No Free Lunch principle predicts that every mistake a market makes will be a surprise at the time it is happening. To the vast majority of investors, market mistakes will be visible only in hindsight. So market mistakes will be very hard to detect and exploit at the time they occur. Sadly, a speculator cannot profit from 20/20 hindsight,

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