There are always alternate views to the stocks making new high:
- Contrarians like to take profit when stocks makes new high. If there are enough people selling, stocks are likely to come down.
- Most momentum traders like to ride the strong trend by trading breakouts. Breakouts are quite profitable when they do happen.
For a long, long, long while, I struggled with this issue, should I always trade breakouts, or always take the contrarian trade? This really bothered for some time. I was taking momentum trades one day, and on another day I will be trading reversals. I would be reading books by Richard Dennis who mades his millions trading breakouts, and on the same day attend a local seminar by Jeffrey Tie who trades against breakouts all the time. I was really confused.
Today, I can say that I am both a contrarian, as well as a trend follower. And I am confortable with it. Sometimes, I ride with the trend, while sometimes, I buy when stocks are beaten down. You know what, I cannot really explain why it does not bother me anymore. I think it has something to do with the time or time frame. There is a time to be contrarian, and there is a time to ride the trend.
Sometimes, I can be contrarian in the short term, and riding the long term trend, all at the same time. At other times, I can contrarian in the long term, and riding the short term trend, again at the same time. A bit complicated isn't it?
For the STI, I am now bullish in the long term, and contrarian in the short term. Whenever STI retraces, I will buy bullish stocks making new highs. I am expecting the STI to test the previous highs made in end 2010 (about 3300). I have no plans to short the STI......yet.
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