Overview Overview

Once a certain idea is formed, it will be imitated by most people until everyone thinks it is correct. This is the formation of a market trend. Due to the inertia of public thinking, market reversals always come very suddenly . The application of the opposite theorem to secondary markets is that since the masses are often wrong at major market turning points, the only option is to do the opposite. This article will explain to investors how to become a contrarian.

Report report

Report report

To a large extent, contrarian investors apply the opposite determination, which is the practical practice of trading psychology, so they need to fully understand the psychology of the public. But it is not simply that when everyone is bearish, contrarian investors are bullish. It is when the mass behavior is collectively demented, so contrarian investors need to be patient, study hard, but have the courage to go against the trend. Let's take a look at why mass behavior produces dementia behavior.

The masses are irrational

In crowd psychology there is a saying that "an organized or psychological crowd maintains a spiritual coherence. The individuals who make up the crowd are emotionally deprived of self-insight, ready to follow the low level of crowd thinking." act in unison". That is to say, when everyone thinks alike, everyone is very likely to be wrong. When most people are inclined to adopt a certain idea, they are often in a dangerous situation when they are under the sway of emotion. When people stop thinking deeply, the decisions they make are often very similar.

Masses believe that individual action alone will never work; people follow the mass spontaneously; judgments based on contagion effects and imitation of a few make individuals susceptible to suggestions, orders, habits, and emotional needs; gathering as a group or as a mass in Together, instead of probing why or questioning, people tend to blindly and impulsively follow what is suggested or asserted. These are the social rules that determine the formation of the mass psychology. The trading market is a borderless group gathering place, where each digital currency is a small gathering area under the big place. Therefore, in the overall transaction process, the behavior of investors will be subconsciously affected by group behavior, and they will make similar decisions that conform to public perception without in-depth thinking. So why did VW get it wrong at critical turning points? The reason is that when everyone is unanimously bullish, the potential buying power in the market is very limited, and there is very little power to continue the rally. If the market is undervalued and the prices of the coins in it far exceed expectations, other investment vehicles will appear more attractive. There is no doubt that funds will soon be drawn away from overvalued varieties and flow to more reasonably priced alternative investment vehicles. The opposite is true for markets in a downtrend. For example, when the economy is in a deep recession, business activity shrinks rapidly, with massive layoffs and high unemployment. The stock market has been in a downward trend for several years, and the market is caught in a vicious circle. The overall environment seems to be out of control. When everyone is depressed, this time constitutes the prerequisite for contrarian investors to be bullish. This is because people are rational. When companies realize that the market environment is about to deteriorate, they will adjust their plans accordingly, cut excessive inventory, lay off a large number of employees, and pay off debts. This will lead to a decline in the break-even point of the company. Once the economic situation improves and it has the advantage of obtaining more profits, the market will reverse. For example, due to the impact of the global epidemic and the sharp decline in the stock markets of various countries, BTC fell sharply on March 12 and March 13. The two-day decline was close to 50%. The public psychology was filled with panic, and then BTC bottomed out After a rebound, the market trading sentiment began to gradually stabilize. This is a major turning point in the digital currency market, but the bearish sentiment is still the main theme of the market. The decline of BTC was mainly affected by the sharp decline in the securities markets of various countries. After that, when the NASDAQ index in the United States began to rebound on March 23, and the factors affecting the decline in the digital currency market began to change, the digital currency market refused to rise. Monthly sideways volatility, and contrarian investors at this time is another good time for them to build positions.

Major turning points tend to occur when popular sentiment is at unusual extremes. When short- and medium-term turning points occur, popular sentiment is less intense or extreme than at major turning points.

How to Form a Contrary Viewpoint

Easier said than done is to describe reverse investment. The difficulty of reverse investment mainly stems from the following points.

1. Due to the need for consistency, it is difficult for people to disagree with those around them;

2. If the price rises sharply, if someone says that the market is about to fall, they will be ridiculed by the people around them, so it is difficult to persist in reverse investment;

3. When investors conduct reverse investment and run counter to the public, they are prone to hostility from their surroundings;

4. Investors tend to feel more at ease when inferring the future based on the past experience;

5. It is easy to accept the opinions of "experts" instead of independent thinking;

6. The public always tends to think that existence is reasonable.

In the course of market trading, it is never necessary to consider whether the general sentiment will arise, because it will. Contrarian investors only need to consider when and how much. If the judgment is too early, it is likely to have a greater impact on transaction expectations, thus missing a good opportunity. Therefore, it is necessary to combine technical analysis and reverse investment theory to judge the market situation in more dimensions to increase the winning rate.

Conclusion

risk warning:

risk warning:

• Be vigilant against illegal financial activities under the banner of blockchain and new technologies. The standard consensus resolutely resists various illegal activities such as illegal fundraising, network pyramid schemes, ICO and various variants, and dissemination of bad information using blockchain.