Trend following and contrarian (2)
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Serialized series "Trading Philosophy" … 5
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An acquaintance was lamenting that they got to the station too early.
They thought they could just ride the train and kill time en route or near the destination, but they ended up arriving at the station an hour before the first train… You wake up early, huh ^^
“I bought with a trend-following approach and got burned. Trend-following is bad.”
You sometimes hear such words, but I feel the perspective is off.
Trend-following is bad, only contrarian trading exists,
Buying after it has moved up is not good,
Bonding with a contrarian approach to a decline! (Buy on the way down)
I think this is the logic, but
whether you start buying during the decline or after the rise begins,
the goal of the buying strategy is the same: to ride the rising momentum.
The above claim that “trend-following is bad, so contrarian is needed”
is to blame for times when you bought at the high after a big rise,
or you should consider it a foregone misprediction.
It should not be about the method of entering a position (trend-following vs contrarian).
Let's organize the situation.
- How far it will fall (or rise) is always unknown
- Therefore, use a forecast as a basis for position management
- You cannot capture the whole wave (doing half the range is a huge success)
With these premises,
“It’s near the bottom (I forecast)” is contrarian (as in the previous issue)
“It has turned upward (I forecast)” is trend-following
The logic of people who prefer trend-following is as follows:
I won’t ride the counter-moving train
I won’t ride a train whose movement is unknown
I’ll jump on a train once it starts moving
Each of trend-following and contrarian has its own pros and cons.
Recognizing that, you choose your preferred method.
To claim definitively “will it hit or will it profit” is a mistake.
