Let’s understand it in an easy way.
First thing – Contrarians is a term – which in the context of stock market simply means moving in the opposite direction.
That means when everyone is buying, you are selling. And when everyone is advising to sell, then you are bent on buying. Contrarian shares or contrarian trading becomes apparent when you either:
1. Start trading a particular stock in the opposite direction of your choice (although this would only meet the definition of contrarian). Like if everyone is selling Reliance (just to give an example) then you are buying it.
2. Or some stocks may be in a position to trade contrarianly according to the market. For example, if the value of rupee is increasing then IT stocks and pharma stocks will come under pressure and even if the market is doing well, selling may dominate them. Now this same thing can start working in the opposite direction – like if the value of rupee is falling then these stocks will perform well.
These contrarian trades were actually an attempt to break the herd mentality. Like big investors often do this. For example, Warren Buffett is very popular for contrarian trades. He has made a lot of money by doing contrarian trades in the stock market. When everyone is selling in a recession, they are often looking at buying prices.
So, contrarian is a term that you can apply to situations that are opposite to the market trend, whether you say it personally or in the form of a market trend. For example, you will find many people saying that they have taken a contrarian trade today. So, it simply means that today when everyone was buying a particular stock, they have decided to sell it.
One of the biggest advantages of contrarian trade is that if it falls in your favour then just one jackpot will transform you from zero to hero. And the disadvantage is that you just have to wait for your turn, when your opportunity comes.
