Winning Trading

The Law of an organized, or psychological crowd is mental unity. The individuals composing the crowd lose their conscious personality under the influence of emotion and are ready to act as one, directed by the low crowd intelligence.
                                                                               – Thomas Templeten Hoyne
The Theory of Contrary Opinion  and winning trading was first given importance by Humphrey Neill, who combined his own experience and observations on the stock market with those of Charles Mackay, Gustav Le Bon and Gabriel Tarde. Today it is popularly accepted that since the “crowd” is wrong at major turning points, everyone wants to be a contrarian. In the world of winning trading, to be caught with the crowd in this day and age is the equivalent of admitting a sin.
Those of you, who have not had the benefit of reading Neill and other contrarian authors on the subject are missing a big time. Neill pointed out that the crowd of traders/investors is actually correct most of the time. When they really got it wrong is at market turning points. This last sentence is the essence of Neill’s theory. As Neill put it, “When masses of people succumb to an idea, they often run off at a tangent because of their emotions. When people stop to think things through, they are very similar in their decisions (Neill, 1980).
In my opinion, the winning trading is not so much of a science as it is art. In order to be a true contrarian, you need to be able to have your own opinion and stand firmly by it. Let’s imagine you have Ed Seykota in front of you, who is telling you that you should short the EUR/USD and you are firmly believing you should go long! What would you do in this case? Would you follow your beliefs and experience or that of Mr. Seykota. A true contrarian would follow his own trading ideas no matter what. Of course, you need to be thoroughly convinced in your winning trading idea, otherwise it is pointless to take a trade. We know that history repeats itsels, but never in the same way.

There is no perfect approach to trading/investing. There is no holy grail or one strategy that would make you rich overnight. In the end it comes down to the conviction of your ideas, admitting your mistakes and the ability to never repeat the same ones again. As Neill put it, the art of Contrary Opinion “consists in training your mind to ruminate in directions opposite to the general public opinions and to weigh your conclusions in the light of current manifestations of human behavior.” A good contrarian should not “go opposite” for its own sake, but should learn to think “in reverse”.

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