This Is Evident In Such Events As The 1987 Stock Market Crash

Category: Finance, Currency Trading.

The art of contrary thinking is one of the most powerful tools a trader can use, and is a trait with which all true great traders are familiar.

The art of contrary thinking consists in training your mind to ruminate in directions opposite to general public opinions. What is the Art of Contrary Thinking? But basing your opinion in the light of current events and human behaviour. By spotting situations when the consensus is either extremely bullish or bearish, then a trend change is imminent, as it is likely the emotions of greed and fear have pushed prices too far away from true value. Humphrey Neill s book, "the art of contrary thinking, " the best known work on the subject, is based on the simple yet powerful idea that: "When everybody thinks alike, everybody is likely to be wrong" Why Contrary Trading Works. This is evident in such events as the 1987 stock market crash.

When the change occurred, everyone changed his or her mind at once, causing a huge move. Here we have a short- term, self- fulfilling prophecy. Of course, if you can step aside from the crowd and take a contrary view at these turning points you can make big profits. While Humphrey Neil s work, "the art of contrary thinking, " (published in 1954) , is the most famous book on the subject, there existed a century earlier a book on contrary thinking. Why Contrary Thinking will always be Valid. Charles MacKay s book, "Extraordinary Popular Delusions and the Madness of Crowds, " (published in 1854) , covered three important financial crashes: he tulip mania, and the south, the Mississippi madness sea bubble. It will be seen that they go mad in herds, while they only recover their senses slowly, and one by one. " It is clear that to succeed in trading you need to think independently of the majority at important market turning points.

He reflected upon how investors always pushed prices too far when caught in a consensus: "Men, it has been well said, think in herds. Becoming a Contrary Trader. He realized that human nature would always mean that you had to think independently of the crowd to succeed. " We cannot escape it( emotion) . Gann was one of the greatest traders and traded in the early 20th century. In the future, it will cause another panic in stocks. He was aware that human nature was constant and influenced the majority of traders: "Therefore, in order to make a success, the trader must act in a way to overcome the weak points that have caused the ruin of others" How to Predict a Major Change. When it comes, both traders and investors will sell stocks, after it is, as usual too late, or in the latter stages of a bear market" .

Gann was not just a writer. In 1928 he published a forecast which predicted the date of the September 1929 US Stock Market High, and that a Black Friday would occur, a year in advance of the actual events. He was a successful trader and had an extraordinary record of accomplishment in the stock market, for example: Gann used to publish a forecast for the following year. In 1932, he also recommended buying stocks at the all time low in the Dow in June and July. Gann was one of the most successful stock market investors ever, and developed a strategy to set him apart form the crowd, and simply let market action indicate where prices were going.