InvestorQ : As a trader, can I take a contra view on the market?
Archita Jajjoo made post

As a trader, can I take a contra view on the market?

3 years ago

Contra views work best when you are a long term investor. Then you can afford to take contra views. In trading you have limitations of capital lock in and so you cannot really take a long term contra view. That is the practical side to it. The legendary economist John Maynard Keynes once said that “Markets can be irrational much longer than most of us can be solvent”. That is the crux of trading in the markets. You may feel that pharma is a great contrarian bet but there is a limit to how much you can wait. For example, if you had bought Lupin or Sun Pharma 3 years back, you would still be out of money. Of course, you may eventually be right but as a trader you do not have the luxury to wait forever. Considering your time constraints, it becomes more important to stay on the right side of momentum. Remember, momentum is what gives you positive results in the short term. Searching for deep value may give you results in the long term but you are not sure how long that will be. When you are trading on the same side of momentum, you are able to churn your money faster and therefore your ROI is much higher. Your stop losses are still going to hit occasionally but if you are on the right side of momentum then you are likely to be right more often than wrong. Trading equities or any asset is not simple enough to be boiled down to a simple quote. Contrarian trading is not a smart thing to do. When the market is showing a trend, it is telling you something. Listen to the market and trade accordingly.