Contrarian Trading Strategy — What Is It? (Backtest And Example)

One of Warren Buffett’s investment advice is, “Be fearful when others are greedy and greedy when others are fearful!” That basically explains the contrarian trading strategy.

The contrarian trading strategy is one that goes against the prevailing sentiment in the market. In other words, it is a trading method that seeks to trade in the opposite direction of a recent move in a market. This means that you sell when others are buying, and you buy when others are selling. We present an example of a contrarian trading strategy (with backtest).

Want to know more about the contrarian approach to trading? Let’s dive in.

Contrarian trading strategy — definition

By dictionary definition, a contrarian is a person who takes a contrary position or attitude; in the investing/trading world, it specifically refers to an investor or trader who buys shares of stock when most others are selling and sells when others are buying.