V.10:12 (514-516): Contrarian Thought by John Blasic

V.10:12 (514-516): Contrarian Thought by John Blasic
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Contrarian Thought by John Blasic

As a rule of thumb, the crowd is always wrong at the top or at the bottom, but how does one gain insight into what the crowd is doing? John Blasic discusses some basics of measuring crowd psychology and using it in contrarian strategy.

Contrary thinking is an art form that should be included in every technician's arsenal. It is a single concept that comprises many individual parts. Contrary analysis studies market extremes as a form of psychological analysis, emphasizing the principle that whenever the crowd agrees on anything, they must be wrong. How can traders profit from contrary opinion? How indeed? Remember: the facts themselves are unimportant. It is what they are perceived to be that determines the course of events.

Whether stocks or futures or just about any other market that involves human activity is being analyzed, crowd psychology becomes the dominant force behind price movement. While supply and demand affect price, price is also affected by trader or investor perception. At any given time, prices will accurately reflect the level at which a seller is willing to part with a given object and the price that a buyer is willing to pay. When an imbalance occurs between these factors, a price move results.

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